Ahh confidence. Such a fragile thing. So easily disturbed given the growing brittleness of our national psyche. This is the week we find out how happy Australia’s businesses and consumers are. Anecdotally you’d have to say that we’re not very happy. We’ve had an extraordinary run of press lately to the point where I saw one politician having to dismiss the apparent jobs crisis we’ve got. "What jobs crisis?” he rightly said. But he had to say it and when we’ve got an unemployment rate of 5.2 per cent this is not a conversation that you should be having.
This is an extraordinary mindset for a country with our economic backdrop. Unbelievably, our business community are at the forefront of it, trying at every turn to tell us we’re in a non-mining recession, that the Australian dollar is crunching growth, that consumers have put their wallets away – and – that if we don’t tax imported consumer goods, then zillions of jobs in the retail industry will be lost. The country will collapse, damn it!
This isn’t recent – it has been going on for years, probably in an attempt to squeeze more corporate welfare from the state or block competition. Where were the stories in September smashing home the fact that economic growth was at its strongest in four years? Contrast that with the press this time round highlighting how weak growth was – below trend apparently. Although it isn’t. Similarly, where were the news stories this time highlighting the strength in manufacturing? Front page stuff I would have thought.
So it’s not good for confidence to be constantly bombarded with this press – as biased and false as it is. Completely one sided to the point of being misleading. Throw in the events in Europe and this obviously weighs heavy on confidence. The good news of course is that events in Europe have calmed down a lot. We’ll see what happens here as the latest Greek deal has triggered CDS contracts – all hell could break loose or nothing could happen.
On Friday night the reaction was muted. That said, business and consumer confidence has improved a lot, although they are still below average. So far, this below average confidence hasn’t hurt spending or investment too much, although that is the risk. The reason of course is that despite the press, households still face a very low unemployment rate and decent wage growth. Business in turn is investing because they are cashed up and because the demand is still obviously there – not to forget the resource and agriculture boom. The economy, though, is delicately balanced. Perception can change reality and it is. But the point I’d like to make at this stage, is that looking at the data, soft business and consumer confidence doesn’t appear to reflect any fundamental issues. Only issues of perception, which has been distorted by the news flow over the last few years. This is a very important distinction for policy.
In any case, NAB’s business survey for February is out tomorrow at 1130 AEDT and Westpac’s consumer confidence index (for March) is out Wednesday at 1030 AEDT. Prior to that we see Australian home Loans on Tuesday (1130 AEDT) and then we get fourth quarter Dwelling Starts Wednesday (1130 AEDT) and motor vehicle sales on Thursday (also 1130 AEDT) and for February.
Looking over at the US, the two major releases are retail sales for February tonight, where the market looks for another decent bounce of 1.1 per cent or 0.4 per cent ex autos and gas and the FOMC rates decision at 0515 AEDT Thursday morning.
The good news for the US is that consumer spending has clearly turned. Consumer credit growth has surged over these last few month and the employment growth, as we found out on Friday, has accelerated sharply. Both of these are very good reasons why the Fed should hike rates soon, although there is of course no chance that will happen. Fed watchers have actually spent more time discussing the new avenues for quantitative easing. My expectations for this meeting is that the Fed will note the improved economic outlook, they have to, but play it down and spend a good deal of time highlighting areas of weakness – housing, the still high unemployment rate, etc. Overall, I think the door to quantitative easing is still wide open.
Otherwise there are a few data prints worth noting. Producer prices (February) on Thursday night and consumer prices on Friday night. Elsewhere abroad we see Indian industrial production today (1630 AEDT).
Tomorrow the German ZEW is definitely worth a look as is eurozone inflation and industrial production on Wednesday.
Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.
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