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Curb your enthusiasm. I don't want record Black Friday sales

Peter Switzer
25 November 2022

As an economist who’s often disparagingly referred to as “an optimist”, you might find it unusual that I’m hoping these stories of $6.2 billion to be spent on Black Friday sales end up not being true. I call this positive pessimism!

My job is to help the worried — the person who’s not building enough wealth or the mortgagee panicking about rising interest rates and people of that ilk. Right now, my biggest worry is that the RBA goes too far with its interest rate hikes and turns an expected economic slowdown to reduce inflation into a recession.

Let me be clear, most economists think we’ll avoid a recession but when it comes to how many rises, how fast and the total take from households’ incomes from higher repayments, it’s guesswork.

And all Dr Phil Lowe and his team of economists have is the data coming through, which can sometimes be lagged and not telling us what is really going on in the economy. Unemployment data is very lagged but Black Friday sales that go over the weekend to the Cyber Monday sales, will tell the RBA how their past interest rate rises are working.

These will be more “now” indicators and if we blow the record for Black Friday sales, we could see more interest rate rises than we need. I’m not saying I want the whole four days of American-inspired retail therapy to fail but just not be record-breaking. That will make Dr Phil think: “Those seven rate rises of mine are working.”

We don’t want him to think we’re ignoring his monetary madness or he could get seriously mad.

Earlier this month, the cash rate went up 0.25% to 2.85% following the latest inflation reading of 7.3% for the September quarter. And if inflation is going to fall, we need to cool down our ‘too hot to handle’ spending.

Jessica Irvine in the SMH this week gave us an insight how young people like her, even with her great economics training, are looking at rate rises.

This is what she confessed to: “I, for one, am choosing to ring out 2022 with a committed YOLO (“You only live once”) mindset. That’s despite the rather worrying prospect of my home loan interest rate roughly tripling mid-next year, which is set to whisk away my entire current cash flow surplus each month.”

Now she’s choosing to do this but Jessica argues, and I think she’s right, that we “…make decidedly suboptimal decisions”.

She explained it neatly this way: “For example, we engage in ‘hyperbolic discounting’, which means assigning a disproportionate weight to the pleasure we will enjoy from consuming something today, versus consuming the same thing tomorrow. We are also “loss averse”, meaning we fear a financial loss far more than we value the prospect of receiving an equivalent gain.”

But I’d argue that we’re not good at planning for loss, which could either lessen the loss or even help you avoid it.

We’re living for the now and letting the future be damned!

In the middle of 2023, a huge number of Aussies will roll off fixed home loans at 2 or 3% and be on 5% plus variable rate loans.

The RBA says 20% of home loans are fixed, which is the biggest ever, and this was stimulated by unbelievable offerings during the COVID lockdowns. I actually saw a four year rate at 1.99%, which I told radio listeners that they’d never see that again.

“Around two-thirds of existing fixed-rate loans are set to expire over the course of 2023 (with a lucky third having fixed until 2024 or beyond),” Jessica pointed out.

Right now, the run of economic data isn’t convincing for the RBA and if inflation looks like it’s set to remain high, then we’ll see more rate rises than we might need.

And a news.com.au story shows that Black Friday could also cause a productivity problem as well. “According to Finder, more than 544,000 Aussie workers have called in sick to go shopping this year already – a trend that could cost the business industry millions,” Isabell McMillan reports. “With so many people away from work, it’s costing businesses money in the form of productivity, with the average amount lost per person, per day equating to $354. All up, with more than half a million people away from work, it amounts to a $192 million loss in productivity.”

Based on a survey of 1,000 Australians, men are more likely to call in sick to shop on Black Friday compared to women but it was 4% compared to 3%.

Undoubtedly, Black Friday will hurt productivity but so does the Melbourne Cup, World Cup soccer and other national distractions. But my greatest worry about the Black Friday sales will be if Dr Phil sees a record retail number.

One positive about Black Friday is that retailers cut prices and this helps bring down inflation but the size of our spending will be watched by the RBA, so please curb your enthusiasm to spend!

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