It continues to fascinate me just how much the media talk about rubbish every day. The supposed experts make predictions about when the world recession will be over and when it may have hit the bottom. Given they didn’t predict what happened in the first place you can hardly count on them getting it right this time. People are hurting and that hasn’t changed one bit.
The Australian Bureau of Statistics (ABS) released their retail sales figures yesterday which showed that retail sales were down 1.4% during June (seasonally adjusted), following consecutive 1% increases in May and June. Given the level of discounting in the retail sector, margins are low and people have been enticed to spend – this of course has debt implications.
They also released the figures on housing prices. Sydney houses (overall) are down by 1.4% for the year. Prices have been held up largely by the first home owners grant which ends at the end of the year. Luxury homes have been hit much harder than the figures might suggest with the bulk of market activity at the $500,000 AUD level and below. We should not expect property prices to continue to increase in the foreseeable future unless we are prepared for a price bubble.
So are we on the mend? Many would argue that we are but we have a long way to go. Unemployment is increasing with the more pressing issue being the level of underemployed in Australia – about 1 million people. This of course impacts on standard of living and is a source of enormous pain for millions of families.
The price of oil is increasing (maybe to around $100 US a barrel by the end of the year) – therefore we can expect petrol and grocery prices to increase. The inflationary impact of this will push the Reserve Bank to increase rates. This increase will further hurt families who are already stretched.
The Reserve Bank decided yesterday to leave interest rates on hold at 3% but have indicated that we need to expect increases. Let’s not forget that Australian households currently owe more than $3.5 trillion AUS in debt – a massive increase of more than $2.8 trillion AUD in just a decade.
We need to brace for further belt tightening and cash is king. Our spending habits must change immediately and for many the change has already been forced. We need to grow the economy in real terms, rather than the fake credit growth that has been all consuming for so long. In short there is plenty of pain ahead and we need to pay back the huge amount of money owed by households and Government – it will hurt.