The RBA should hold fire even though consumer confidence is not falling evenly across all social groups: COLIN BENJAMIN
By Colin Benjamin
The latest consumer confidence surveys are showing that the US sub-prime crisis is shaking national confidence levels not only in the American markets but in Europe too.
Consumer confidence in Australia has dropped dramatically on both the Morgan and the Westpac indicies. The Morgan poll showed a fall of 6.3 points to 109.5 from February: 11.2 points below the March 2007 result of 120.7.
Gary Morgan says the latest result is the lowest since September 2006. His poll also looks at the mindset of the market.
The latest Roy Morgan Consumer Confidence rating for March is as follows:
|
Dec 07
|
March 08
|
Rise/(fall)
|
|
|
Basic Needs
|
107.2
|
87.2
|
(20)
|
|
A Fairer Deal
|
104.6
|
111.4
|
6.8
|
|
Traditional Family Life
|
121.3
|
97.8
|
(23.5)
|
|
Conventional Family Life
|
124.8
|
107.4
|
(17.4)
|
|
Look At Me
|
132.7
|
127.2
|
(5.5)
|
|
Something Better
|
126.8
|
128.6
|
1.8
|
|
Real Conservatism
|
123.3
|
102.2
|
(21.1)
|
|
Young Optimism
|
137.2
|
127.5
|
(9.5)
|
|
Visible Achievement
|
130.5
|
109.2
|
(21.3)
|
|
Socially Aware
|
135.3
|
105.3
|
(30.0)
|
On this basis, as argued in my earlier letter to RBA Governor Glenn Stevens, care should be taken interpreting the Westpac general aggregates and every effort should now be made by the RBA to reconsider a proposed May increase in interest rates as the message has definitely got through to the “AB” socio-economic segments (that is, the Young Optimism, Visible Achievement and Socially Aware segments that have started to feel the credit crunch).
The only concern is that the working families that Prime Minister Kevin Rudd is concerned about are expecting tax cuts and a halt to rising petrol and food prices to meet the costs of their rising mortgages (that is, the A Fairer Deal and Something Better segments).
The US Federal Reserve’s Ben Bernanke is already signaling yet another cut in interest rates to help bail the US out of the sub-prime crisis, and has just handed out a financial crutch of $US200 billion to prop up the mortgage brokers and bank moral hazard for a month.
Economists are calling for a further interest rate cut to counter declining retail sales and the credit crunch because there is considerable variation between levels of consumer confidence and business confidence.
Australia appears to be facing an inflation breakout leading to it going in the opposite direction, with Glenn Stevens contemplating another rate increase in May that will further savage national growth rates.
Rudd has been forced to protect carers and the aged with a $1.7 billion continuation of pre-election, supposedly temporary, surplus funded handouts. He is reported to have met with the RBA to offer to find more than $18 billion in expenditure to cut over the next four years without challenging the independence of the central bank.
So it’s USA down, Australia up– and watch this space.
Expect a world wide slow down in consumer spending and early signs of stagflation around the globe, despite rising commodity prices, and watch oil go over the $US110 mark and gold hover around $US1000 as consumers continue their dramatic loss of confidence since the Kevin 07 euphoria.
Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton.
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