In the lead-up to Christmas, consumers in the US, Hong Kong and Germany put aside what was happening in the sharemarkets. That spirit appears to have continued through Christmas and onto the Boxing Day sales with a number of all-time records to be eclipsed – although the Australian numbers will be a hollow victory.
In Germany, it seems that consumers can’t be bothered with all this European ‘nonsense’. In the US, the coming clamps on government spending are in the future, while in Hong Kong, there is plenty of money around. In Australia, mortgage interest rates are a full 1 per cent lower than where borrowers thought they would be six months ago. How wrong can you be?
Veteran US economist Al Wojnilower says that for many months, American households have been trying to launch an old-fashioned business cycle recovery. Notwithstanding reduced credit access, floundering stock and real estate markets, and unemployed relatives and neighbours, consumers have been stepping up their debt-financed buying of motor vehicles, electronic equipment, clothing, and other discretionary items. The Thanksgiving holiday, which celebrates the achievement of peace and prosperity, was effectively extended to include several more days of frenzied round-the-clock shopping. While the margins were skinny, the strategy paid off.
US unemployment dropped from 9.0 per cent to 8.6 per cent in November. Much of this can be attributed to a sharp increase in the number of workers that have given up looking for work and are no longer considered unemployed, but 120,000 jobs were added to the economy and the previous month’s figures were upwardly revised.
The psychological impact that has on a beaten down population should not be underestimated – for the moment they don’t have to pick up the paper to see an unemployment rate with a nine in front of it.
The underlying problem that continues to dog the American economy is of course housing and some reports are still showing a decline in prices with foreclosures still working their way through the courts. But there’s reason to hope. Analysts are increasingly expecting the US property market to find a bottom in 2012 and November housing starts, historically seen as a leading property indicator, surged 9.3 per cent from October to their highest level since April 2010 - we'll be investigating this shift in coming days. It’s another important mental trigger for consumers to go home knowing their house isn’t worth less today than it was yesterday.
Today, US retailers are cheering because households are resuming their normal habit of borrowing and buying more, notwithstanding slow growth in wages. But looming ahead are potentially major reductions in government spending and borrowing, as well as increases in taxation, which may countervail the gains in consumption.
In Australia, our economy is relatively strong, but at the moment it’s delivering higher unemployment and sluggish property prices. While the jobless are still few and far between and house prices are out of reach for first-home buyers, retailers are still fighting a cautious consumer – even if the Boxing Day sales break records, the tough preceding two months have left retailers scrambling. The latest research from Roy Morgan set the scene, with consumer confidence slipping 3.8 points to 109.6 in the last week before Christmas – in the lead-up to the 2010 festive season it was touching 125. The Westpac-Melbourne Institute survey found similar tones of pessimism.
But these overall market trends obscure fundamental changes in buying habits, including greater use of the internet and local and global comparisons of quality and values. These two events are reducing margins (Retail therapy's new friends, December 14).
With Christmas behind the world, it may be back to the unsolved problems.