It’s the new dinner party conversation.
It starts with the weather, how unseasonal it is and how unfair that we have to suffer it at Christmas. It then moves onto Christmas shopping, the conditions of retail, how truly awful Australian retail websites are, the great deal we just got overseas buying online and then, there it is: the big question of Christmas 2010 that no one knows quite yet how to answer. Will Australians keep saving next year?
It is something we all want to know. We need to know. And the reason is that we are all feeling pretty confident about how things are travelling and looking forward to a better year next year, except for this particular fly in the ointment.
Consumers are saving the most they ever have since 1987. Now many people won’t remember the mood before 1987. Back then people saved for things and no one talked about equity in their homes. Of course, property prices in the late 80s boom turned into a national sport and people spent the next two decades spending their home equity to fund holidays to Bali.
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But it is the tail end of the GFC. People are exhausted, satiated after decades of spending, amazed Australia got off so lightly and a little bit frightened that we are not out of the woods yet. The horror stories that have emerged out of the US and Europe of ordinary people being left with negative equity in their homes and forced to walk away has impacted on our psyche.
So when Reserve Bank governor Glenn Stevens recently called on Australians to save, unusually they heeded his call. Many property owners are looking at the new year and figuring that interest rates are going to rise.
The latest missive out from the Reserve Bank today indicates there won’t be any interest rate rises early in the new year, however we can’t completely bank of this.
The quarterly GDP outcome was a little softer than had been expected in November and while pick-up in business investment was in line with the forecasts, consumption growth had been weaker. There are few signs that commercial construction was picking up. Business credit had fallen again in October while spending and borrowing by the household sector remained subdued.
And no surprise to anyone, the Reserve Bank confirmed a “surprisingly large fall in the ABS estimate of retail spending in October” with consumer confidence falling after the increases in interest rates in early November.
But the bad news – at least for retailers – is that the mood of Australians doesn’t look like changing any time soon. So for what it is worth and if I don’t catch up with you for dinner over the holidays, here is my view. Aussies will keep saving well into 2011 in anticipation of more rate rises, less business credit and the possibility of more bad news from overseas.
There will be a flow-on affect across the economy which means the start of 2011 is going to require a lot of focus, flexibility and a big dose of entrepreneurial zeal. Fortunately our SmartCompany readers have that in spades!