The latest Westpac consumer confidence survey shows sentiment is on the rise. Between October and November, confidence went up 3.9%, to 101.7 on its index. That’s up from 97.8 at the same time in October. What’s more, the index has risen 8.3% since September alone.
It’s an interesting trend taking place. Not least because it defies all logic. There’s nothing better about the Aussie economy today than back in September. If anything, things have regressed.
The bare truth of China’s slowdown is clearer than ever. We don’t need to talk about that here.
Meanwhile, Australia’s service sector contracted in October, according to the Australian Industry Group. It fell to 48.9 on the PMI, down from 52.3 in September. Anything below 50 indicates a reduction in output.
On the housing front, all the big banks hiked mortgage rates for owners. Any household repaying a loan is worse off as a result. These days, the only news we pine for are clues as to when the next rate cut is coming.
How else to explain this renewed optimism then?
Two months ago, Tony Abbott was still Prime Minister. Then came the coup… In a flash the Libs, and the nation, had a new leader. All of a sudden, Malcolm Turnbull as PM became a symbol of hope for the nation.
If there’s one thing we can learn from this, it’s that people are irrational. They see the world, and what happens in it, as one big gut feeling. Yet when you sit down and think about it, none of it makes any sense. What difference does one man make to your spending habits? The only person that should is the one that has the power to give you the sack…
And yet despite all this, it quite clearly influences consumer sentiment.
The Turnbull difference
Prime Minister Turnbull is a businessman. A man that once walked the halls of Goldman Sachs Australia. This tiny fact about his life is important. It was a key reason why markets were so happy to see the back of Abbott.
Here’s Westpac’s chief economist Bill Evans explaining the impact of Turnbull:
‘I think [markets] probably feel the economic portfolios, in particular, will be managed in a better way and that is likely to lay the foundation for a stronger economy.
‘If people believe that, that is half the battle because they will then lift their spending which of course will help the growth story.
‘This year the numbers are the best that’ve seen for the seven years that we have been asking those questions’.
This train of thought is understandable enough, if entirely flawed. Someone that knows business doesn’t automatically have an answer to an economy’s problems. Especially when business conditions are beyond their control.
Its illogical then to think any one man can make a difference to our nation. But we do. And we base big decisions on trivial things like leadership.
It’s amazing how little it takes to perk consumption up. It’s almost as if we want to believe that one man will be the difference. Regardless of whether we can actually rationalise it that way. It’s a reflection of the piousness of markets. They’re as emotional as a congregation at a local church.
Whatever kind of leader Malcolm Turnbull turns out to be, he can’t change what really matters. He can’t change weak forecasts for global growth. He can’t force businesses to increase investment and hiring. These are the kinds of things that promote real growth.
He can lead the charge on new fiscal policy. But he won’t do anything any other leader wouldn’t have. It’ll just be a spin on what you’re used to already. That means more taxes, and less government spending.
With tax, Turnbull will have his hands tied there too. Two Senate members today came out against the planned Goods and Services Tax hike. GST will likely go up to 15% at some point, but it’ll be a battle.
And just wait until the government starts coming after super… We’ve placed our consumption sentiment in the hands of someone who himself is handcuffed.
The only reason consumer confidence is up is because we’re living off established prosperity. Household debt is approaching record levels. As a percentage of income, it’s sitting at over 150%. Which means our spending habits are rising on the back of borrowed money.
If that’s a good thing for Australia, then we’re in serious trouble. So before you splurge on your family this Christmas, just remember that one man rarely makes a nation great. I suspect Turnbull won’t prove the exception to the rule.
Contributor, The Daily Reckoning
PS: The Daily Reckoning’s Greg Canavan believes Australia is heading for recession in 2015. In a free report, ‘Australian Recession 2015: Unavoidable’, Greg reveals how we’ve found ourselves in this position.
From falling GDP growth, to declining terms of trade, all signs point to a crash. Trade imbalances have been growing for the better part of a year. Government revenues are down, and household debt is up. It adds up to a recession that’s coming sooner than you think.
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