17 April 2024
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Is the economy booming or dooming?

Peter Switzer
29 February 2024

Yesterday was a day of conflicts with me writing about the real life economic signs that the economy is slowing, but then I was invited to the new fantastic musical & Juliet, which meant I saw The Star complex in Sydney packed to the rafters with diners, gamblers, and theatre goers!

It's made me ponder whether I should I be talking about boom or doom.
And this happened with the economy throwing off two conflicting statistics. On one hand, the monthly inflation reading from the ABS came in at 3.4% for the year to January, which meant no rise, and this was less than economists expected. They tipped 3.6% but they looked at the still high cost of building a new home, which was up 5%, and rents which are 7.8% higher. This made them suggest these could keep inflation high for longer than the RBA wants.
When you throw in recent strong wage rises, some economists are pretty pessimistic that inflation can fall enough to get the RBA to start cutting interest rates.
The AFR reports that “Jarden chief economist Carlos Cacho said he expected rents to grow at an annual pace of 7 to 10 per cent for the next two years, while there were few signs that inflation in the cost of building a new home was easing.
“Wages costs are still a challenge, and we’ve seen the price of some inputs like plasterboard go up. Yes, you’ve seen some falls in inputs like timber and steel, but it doesn’t seem like it’s enough to offset that,” he said.
It is possible that economists are looking at the bad news on the costs of housing and rents but ignoring other areas where prices are falling.
Westpac’s chief economist and former RBA heavyweight, Lucy Ellis, thinks inflation still might be heading into the 2-3% band, which should get the RBA cutting rates.
“It does look like global goods inflation is going to be running similar to its pre-pandemic rate, which was an average of 0 per cent,” she told the AFR. “And we’re not yet there for goods inflation in Australia, so that gives you a bit of space for other things to have a rising relative price.”
While some economists are stressing about future inflation, Treasurer Jim Chalmers is rightly warning about a possible economic slowdown, with economic growth figures out next week. Obviously, his Treasury number crunchers would be looking at the statistics and real-world indicators of business and consumer activity, which are suggesting our economy, wait for it, contracted in the December quarter.
Remember this: if the economy is really slowing, prices and inflation is bound to follow.
Lucy Ellis, chief economist at Westpac, sees a significant slowdown in her growth model on our economy with only 0.2% rise for the quarter, which would mean four quarters in a row of falling economic activity. “Everything we’ve seen – hours worked is soft, trade is soft, the indications on investment are a bit soft, and now today’s dwelling investment numbers are a bit soft,” she said yesterday.

The global economy is slowing too, with Japan and the UK in technical recessions and these are important customers for our exporters, so the RBA has to be careful that it doesn’t get too stressed about inflation and keep interest rates too high for too long and dump us into a recession.

Economists are divided on next week’s economic growth, but it will be for the three months to the end of December. I reckon things have slowed significantly since Christmas. Yesterday, I reported that my Sydney CBD sandwich shop owner said he advertised for more staff as workers were coming back to the office. He got three responses in November. However, two weeks ago, he got 80 potential applicants.

Interest rate repayments and rising job losses suggest we’re seeing a slowing economy but that won’t show up until the March quarter of economic data, which won’t be out until April 24! If we see contraction of the economy then, we’ll see speculation that May or June could bring the first rate cut!
I think we can avoid doom, but a boom is more a 2025 thing, after rates have fallen, but it will depend on what the RBA does in coming months.

(By the way & Juliet, a great musical that ponders the outcome if Juliet didn’t commit suicide when Romeo took his own life, but instead went to Paris and lived it up? The songs in this funny show come from Max Martin who has written songs for Taylor Swift, Ed Sheeran, Justin Bieber, and many more big stars. And he co-wrote “Shake it off”, “Blank Space” and more for Taylor!)

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