Notice anything about this list? It’s consumers who are still catching up after lockdown ended, when most people were still earning income but were prevented from spending it. We couldn’t go to hotels, cafes and restaurants, interstate travel was restricted and vacations abroad were banned.
As for buying a new car, a previous global shortage of silicon chips and container shipping meant few made it to the country.
Got it? Much of the strong consumer spending that kept the economy buoyant last quarter came as life returned to normal following lockdowns and the easing of pandemic-related supply shortages. It’s a temporary catch-up that won’t last long.
Now let’s look at what the quarterly reports tell us about household finances. Despite their strong consumer spending, their real disposable income actually fell by a fraction in the quarter, bringing the overall decline for the year to September to 2.6 percent.
Why has household income fallen? Because prices rose faster than wages. How could households increase their spending while their incomes fell? By cutting the portion of their income they saved rather than spent.
After the first lockdown in 2020, the household savings rate jumped to over 19 percent of disposable income. Why? Because people had a lot of income, they just couldn’t spend.
Since then, however, the savings rate has fallen sharply. And in the September quarter, it fell from 8.3 percent of revenue to 6.9 percent – almost back to pre-pandemic levels.
As Callam Pickering of jobs site Indeed explains, “Households have relied on their savings accumulated during the pandemic to sustain their spending over the past few quarters.” Recently, however, they “have been hit from all sides, with high inflation and a decline [house] Prices and mortgage repayments weigh heavily on household budgets.”
“As household saving continues to decline, households’ ability to absorb the impact of higher prices and rising interest rates will also decrease,” he says.
At the end of September, the hit from higher interest rates was just beginning. Of the 3 percentage point increase in the official interest rate that we are aware of, only 0.75 percentage points have hitherto reached private borrowers.
The slump in growth of state monetary policy is therefore only just beginning. As for the other policy area, fiscal policy, we know from the October budget that it will not drive the economy forward. And in the September quarter, falling infrastructure spending caused total public sector spending to lag somewhat behind overall GDP growth.
A similar subtraction came from net exports. Although export volume rose 2.7 percent in the quarter, import volume rose more — 3.9 percent. A large part of this net subtraction came from the reopening of our international borders. Our revenue from inbound travelers increased 18.6 percent, while the cost of our own international travel increased 58 percent.
After all, self-righteous businesspeople always tell us that if we want real wages to rise, not fall, there’s an obvious answer: we need to increase our productivity.
Sorry, not that easy, preacher. The accounts show that real labor costs for employers per unit of output fell 2.6 percent over the year to September.
This means that after accounting for the increase in productivity achieved by the country’s employers, the increase in wages and other labor costs has been much smaller than the increase in the prices they charge.
This suggests the company’s earnings are much better positioned to weather the tough times of the next year than the pockets of their employees and customers. Bad omen.
Ross Gittins is a business editor.