So will Australians spend the $8.2 billion the federal government is sending them in the mail from next Monday, or will they tuck it away for a rainy day because of the slumping economy, bad news and worries about employment next year?
The money is most of the $10.4 billion (the rest is mostly first home buyers grants) stimulus package announced in October.
Not everyone is getting a boost: a significant group outside will be single renters, and self-funded retirees who don’t get any sort of pension. But that aside will the injection work?
Well, no, if the national accounts for September are any guide, or a 22% plunge in new car sales last month; and another poor month for building approvals in October, down 5.4% on September seasonally adjusted and 26% on October 2007, according to the Australian Bureau of Statistics yesterday.
The value of new housing approvals also fell sharply with privately-owned housing, non- private dwellings and alterations all down substantially.
The national accounts showed the household savings rate up top 3.9% in the September quarter, driven by a refusal of consumers to spend the dollars surging into the economy from the improved terms of trade and into national income.
The ABS figures show a big gap between overall growth in the year to September of 1.9% and a 6.4% rise in real gross national income, boosted by a 5.6% rise in our terms of trade in that quarter alone.
On top of that we had tax cuts from July 1 which saw us pay just over $600 million less in tax to Canberra.
And we saved that, which helps explain why car sales are falling, why housing and retailing have been weak.
Why: it’s a combination of a lack of confidence about the present and concerns about the near future, not a shortage of money.
Those consumer confidence surveys are important indicators: they tell us that people are not confident and have cut their spending plans.
But there is some good news coming down the track from a sharp upsurge in housing approvals from the government’s first home owner’s boost in the package.
That is something that won’t be reported until this time next month in the next building approvals numbers for November. December’s will be stronger. They will come in February. Those grants were the other part of the $10.4 billion stimulus package.
But November and this month will prove to be difficult months for much of the remainder of the economy.
With consumers hunkering down, there’s every chance the boost to be delivered in the mail from next Monday will be mostly saved.
The national accounts show that consumers cut back on discretionary spending, even though they had the income to spend from the tax cuts, rising hours of work and higher wages.
Unemployment is not a problem (like in the UK and US), but the fear of it, plus the stockmarket crash have sent consumers into their shells.
The $8.2 billion to flow next week sounds a lot, but looks like not being anywhere near enough to change current behaviour.
Only the export sector (and mainly iron ore and coal) will keep things on the up, helped by the recovering rural sector.
Certainly last month was a nasty one for cars sales.
The Federal Chamber of Automotive Industries (FCAI) said yesterday 71,647 new cars and trucks were retailed last month, down 20,434 on the 92,081 sold in the same month last year. 79,105 units were sold in October, so the fall was 11% month to month.
The FCAI said the November result left the year-to-date market down by 2.9% compared to the same period in 2007.
That’s a doubling in the fall from October to November. The November figure echoes what has happened in the US (down a huge 37%, Germany down 17%, Japan and South Korea down 27%).
Cars are probably the second biggest purchase we make after a house and the slump is another sign of the rising levels of caution among consumers, despite the tax cuts and the interest rate cuts to the end of November.
The national accounts showed that Australians have boosted their savings from almost nothing at the start of the year to 3.9% in the September quarter, despite getting a tax cut from July 1, and then the benefit of one rate cut in September and lower petrol prices.
While housing is sluggish, it isn’t a black hole, but we have cut the amount of money we are spending on renovations and alterations, according to the national accounts.
Three leading broking economics teams picked up on the shift to savings yesterday in looking at the accounts.
Merrill Lynch pointed out that:
"Australian households received a significant tax cut at the beginning of the September quarter which helped boost disposable income by 3.8% quarter on quarter (qoq).
“Despite this, consumption rose by just 0.1%qoq as the household saving ratio spiked from 1.3% to 3.9%. Clearly, Australian households are undergoing a significant period of balance sheet consolidation."
Merrill’s said that even though there was the spending package from Canberra next week and the 3% of rate cuts since September, they didn’t see consumers going out and spending up.
In fact they said the consumer is cautious because of three factors:
"Looking ahead, it is true that there are several factors now pulling in favour of the consumer – most notably falling petrol prices and increasingly accommodative monetary & fiscal policy settings.
"Ultimately, however, we remain bearish on the Austr
