Consumer confidence is atrocious at the moment. The budget crisis is getting worse, we’ve got an income recession and the terms of trade is collapsing around us! We’ll all be rooned!
It’s not a great backdrop for Christmas spending though, and consumers are already a fragile bunch. Or so goes the common wisdom.
But that got me thinking. We all know that economic statistics can often paint a misleading picture of things. So many adjustments are made to them you can lose a lot of information content. Like, for example, what consumer spending actually looks like.
Chart 1: Have consumers put their wallets away?
So what does the data actually look like when you strip out all of those adjustments and take a look at the raw, naked data (Chart 1)? Do you see what I’m seeing? Phwoar! That’s right. Consumer spending looks pretty fit and healthy.
In fact there has been no discernible change in the underlying trend for many years. If anything, consumer spending is currently above what a simple linear trend would suggest it should be. That’s quite something for an economy that is supposed to be in an income recession, or somehow suffering from the collapse in the terms of trade.
Notice those peaks in the data. That’s what consumers spend over Christmas. Notice the pattern: it gets larger every year. In fact, it’s a good 40 per cent higher than what we saw pre-GFC. It’s a very different scenario to what we kept hearing about year in and year out about weak consumer spending. A spending recession, even.
It’s fair to say that the current growth rate -- average annual growth just over 5 per cent currently -- is a little lower than usual. Not by much though -- maybe 1 per cent. But when you are talking growth rates of 5-6 per cent, this isn’t a difference that should warrant much concern; the utter fear that has engulfed politicians and policymakers.
What’s interesting is that this ‘slowdown’ in consumer spending has really only been driven by a handful of items, some which don’t even make any sense given strong population growth and the ageing population.
For instance, apparently we spend much less on medicines and medical aids. Well, maybe not less, but certainly spending has been apparently stagnant.
Similarly, we spend much less on transport services, and of course the ABS would like us to believe that the quantity of food consumed hasn’t changed over the last year. There’s an old saying: if the data looks wrong, it is. And this data looks wrong.
So will the Grinch steal Christmas this year? Highly unlikely. On current spending patterns, growth will be strong, as it always is. The Australian economy is on the up; don’t let anyone fool you about that. The only way anyone can show a weak economy is if they make a little adjustment here, or take out a little bit there -- all of a sudden, voila! The economy is weak.
Fortunately, consumers don’t live in a seasonally adjusted world. We spend what we spend, and the numbers show that spending is healthy. That kind of makes sense doesn’t it, given that household wealth and incomes are hitting new records (Unmasking the ‘income recession’ myth, December 23).
That said, while the Grinch may not steal Christmas this year, the same can’t be said about the Bureau of statistics nor the nation’s economists. I’m sure they’ll figure out some way to filch the growth away. We’ll find out next year.
“Reflect upon your present blessings -- of which every man [nation] has many -- not on your past misfortunes, of which all men [nations] have some.” Charles Dickens
Have a very Merry Christmas all!