No matter where you went in Australia during January, you found the same phenomena -- an intense battle for a diminishing discretionary dollar.
The winners and losers in that battle will become clear in the coming profit season, although the battle is particularly vicious outside listed companies in the small enterprise community. As I explain later, but for Chinese and Asian investment in real estate, the impact of lower discretionary spending would be much worse.
Nothing illustrates what is happening better than airlines and restaurants.
When I talk to airline people I find that while business demand growth is holding, there is only a moderate increase in leisure travel -- much less than in previous years. Given the restraints on discretionary spending, the best airline growth figures are coming from the discount airlines. My guess is that Virgin’s decision to buy Tiger equity for $1 and take the debt on its balance sheet looks better now than it did last year.
In many tourist towns the low-cost take away shops -- say fish and chips -- are doing much better than the medium-priced restaurants.
But remember our society is polarising at the top and bottom ends of the income tree.
There was no shortage of discretionary dollars in many higher income areas over January. Many upmarket restaurants and high-quality, GST-free fresh food shops are doing very well.
Retail sales over Christmas disappointed but the January sales may have done better as prices were lower and people knew they were coming. Moreover, lower petrol prices have injected cash into pockets.
During 2015, the battle for the diminishing discretionary dollar will intensify.
In salary terms it is becoming harder to gain pay rises unless you have a very strong bargaining position and such situations are becoming rarer than a year or two ago. Many people I know are not finding alternative high-paying jobs as prevalent as they were two years ago.
Higher real estate prices, particularly in Sydney, help confidence. Just as important is the unprecedented avalanche of Chinese money into apartment development, particularly in Melbourne but also in Sydney and Brisbane.
In Sydney Harry Triguboff’s Meriton still dominates -- which is why the Chinese have been interested in buying it (Triguboff seeks $15bn Meriton deal, January 27). Nevertheless a greater proportion of the Australian population is becoming more careful.
The fact we elected a government with one of the most detailed plans ever put before the Australian nation and then watched them rip it to pieces and go for plans largely concocted by Treasury has not helped the nation.
That situation has now been made worse by the fall in iron ore, coal, and LNG prices, which compound the feeling of unease. If anything goes wrong with the Chinese money inflow we will have deeper problems.