Consumer confidence is falling (no Glenn, NO GLENN, not now)
Thursday, January 31, 2008/
Feeling less confident? Surveys show you’re not alone. I wonder if the RBA’s Glenn Stevens realises? I’d better dash off a letter…
We face an inflationary export expanding US market competing for Asian markets with a further 0.5% rate cut in the next month.
We need to remove the credit squeeze on Australian companies that are being encouraged to take on new labour, train new staff and explore the BRIC markets rather than respond to yet another RBA aggregate financial deconstruction of our economy.
Watch the following dates in your calendar to see how important these issues will become: 20 March, 2 April, and Wayne Swan’s first budget.
“Dear Glenn Stevens (c/- RBA),
“Now is not the time to rush out and put on winter woollies to cope with a cold snap on the US snowfields in the middle of an Aussie heatwave. Now is not the time to raise interest rates.
“In these volatile times it is possible to see more daily rises and falls in the US sharemarkets than changes in Melbourne weather.
“You will no doubt believe that your concerns about inflationary expectations are justified by the fact that the unions are meeting for the next few days to try to recapture their lost glory and overcome Kevin, Wayne and Lindsay’s rash of fiscal conservatism.
“You will also be concerned with the impact of fuel and food price rises, the spending power of the Costello/Swan tax cut largesse and the desperate need to get more funds into longer-term infrastructure expenditure that will attract more foreign investment here.
“We have just seen a record Fed lowering of rates by 1.25 basis points to counteract the massive financial collapses associated with the sub-prime housing crisis. We are just beginning to see the next crisis – in the next month we will see the financial derivatives market and the demands for export expansion finance hit the shock waves and cross-currents of the changes in the approach to cash flow lending for medium scale enterprises that are seeking offshore expansion in the BRIC economies. Expect to see a series of big lending institutions admit that they are in a liquidity crisis that curbs their ability to help SMEs expand and disaggregate big end of town value chains.
“Put all this together with a short-term concern with keeping a foot on the neck of the growth in domestic consumption and it becomes obvious why you are more worried about inflation than in the reality of consumer expectations.
“The alternative, of course, is to disaggregate the Australian economy and look at it from the perspective of the average Australian rather than the elite business and market leaders who tend to make up the RBA board with a few billion in assets to protect.
“Instead of looking through the see ‘backroscope’ of last year’s aggregates and the rear view mirror of last night’s rise and fall in the price of oil and gold, why not have a look at the mind of the Australian consumer.
“Glenn, just give Gary Morgan and Michele Levine a ring at Morgan Research and find out how the 10 Roy Morgan Values* Segments are seeing the next few months and the next few years.
“In the last month the three top Roy Morgan Segments (Socially Aware, Visible Achievement and Young Optimism) have shown a dramatic fall in their consumer confidence levels. Most importantly the Something Better segment that represents the average Aussie shopper has also shown a dramatic drop in their intention to go out and spend against the trend.
“The Basic Needs and A Fairer Deal segments have shown a significant increase in their confidence levels in the expectation that election promises remain core policy.
“When you look at this barometer of consumer confidence from the perspective of these 10 distinct consumer segments since your last RBA interest rate rise, I am sure you will find that there has already been a dramatic drop in confidence of the top market segments and only the workers and the pensioners have gained hope from the change in government.
“Surely the RBA board might suggest that a change in lending practices to the highly profitable banks’ top 10% of customers rather than a blanket interest rate rise would be a more efficient and effective encouragement of genuine manufacturing and export production rather than another foot on the neck of householders in the domestic economy.
“Glenn, it’s time to trust the judgement of the consumer and recognise that inflation is best kept under control by giving more credit to small and medium enterprises to grow jobs and the economy and less to the traders who have brought shame to the speculators and so-called financial big end.”
* Developed in conjunction with Colin Benjamin of the Horizons Network.
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