That bonus $1080 many of us received has fallen far of its mark. Picture: Supplied
That bonus $1080 many of us received has fallen far of its mark. Picture: Supplied

Big myth about $1080 payout

It's Melbourne Cup week and on form, you wouldn't bet on the Australian economy.

A terrifying set of numbers came out of on Monday, setting the stage for a tensely awaited Reserve Bank (RBA) board meeting on Tuesday. But the central bank decided not to cut interest rates again, foregoing any boost to the economy for now.

But the economy looks like it really needs a boost. Economists were looking forward to two pieces of data on Monday, and they both came out ugly.

First was retail sales.

Growth in retail volumes fell to about zero over the last year, and that's after rounding the number up. The actual growth was negative 0.145 per cent, a fall in the amount of goods and services sold in Australia. As the next graph shows, that's extremely rare.

Retail sales volumes have plunged, despite the government's $1080 tax offset. Picture: Suppled
Retail sales volumes have plunged, despite the government's $1080 tax offset. Picture: Suppled

It's important to understand this graph. It shows the amount of goods and services we bought, not dollars spent. We are still spending slightly more money than last year.

Retail volumes are calculated by removing the effect of price changes on how much we spend at the shops. In effect, we spent more money at the shops than in the same month last year but got less for it. That's disappointing.

The Australian economy includes a lot of heavy industry and big business. But the consumer economy is still its most important part, accounting for more than half. So the fall in retail sales volumes is serious.

This is especially so since the government handed out tax cuts it expected would flow through to retail spending. Apparently that plan … didn't work.

THE LABOUR MARKET

Of course, the retail sales figures are backward-looking. They cover the month of September. We are already in November. Most economic data is like this - we try to figure out where we are going by looking back at where we have been.

But one kind of economic statistic can tell us something about the future. We call them leading indicators. Job advertisements are a leading indicator for employment - hinting at what the employment situation will be like in the near future.

What they are telling us is not good. After a brief ambiguous wobble in the last few months, they are back to falling. The number of job ads recorded by ANZ in October fell by 1 per cent as the next graph shows.

One of our only signs of what's to come suggests bad news for jobs. Picture: Supplied
One of our only signs of what's to come suggests bad news for jobs. Picture: Supplied

If true, this suggests the labour market is weakening. Of course the job ads series is not a crystal ball. It's a guide and even though it has a very good track record, it is sometimes wrong.

ANZ senior economist Catherine Birch acknowledged the job ads series has been predicting weakness that is yet to arrive.

"The ANZ Job Ads series has been pointing to a material slowdown in employment growth for some time; yet employment growth has been remarkably resilient. We don't expect it can hold up for much longer though. In particular, employment in the construction industry should continue to fall as residential building activity contracts."

That must have been very painful news for the Reserve Bank to hear as it met on Tuesday.

RBA TUESDAY

The Reserve Bank of Australia met on Cup Day to set Australia's official interest rate. The interest rate is chosen to help the economy grow and create employment and recently, the RBA has been trying to wrestle Australia's unemployment rate down.

Unemployment is currently 5.2 per cent and the RBA wants to slash it to 4.5 per cent and below. This is why it has cut interest rates to record lows of 0.75 per cent. Lower interest rates are supposed to stimulate people to spend not save, and businesses to borrow and invest. They're supposed to spur the economy on.

In the last three months, the RBA argued that was starting to work.

"After having been through a soft patch, a gentle turning point has been reached," the RBA governor said in September. He used the words "gentle turning point" five times since August. And he used it again on Tuesday when he decided not to cut rates.

With the latest data in hand we can agree the turning point has been gentle. Exceedingly gentle. Almost imperceptibly so.

This complicates the decisions the RBA must make about the interest rate in future. Should it cut rates again? Dare it hope that the economy will finally respond this time? Or will it just be worried the interest rate cut will put more fire under house prices?

With the housing market suddenly ablaze, the futures markets are no longer certain there will be more interest rate cuts. The chance of a cut by March next year is 50/50. That means no help for the economy from monetary policy. Meanwhile the elected government is hellbent on impressing voters by producing a surplus. So it appears committed to not helping the economy with extra spending. So no help from them either

We have bad news trailing behind us and bad omens about the future, while the various arms of government mostly do nothing.

I said above that if the Australian economy was a horse, you wouldn't bet on it. That's a throwaway line for Melbourne Cup week.

The problem is Australians have all already made the bet. We have our livelihoods riding on the Australian economy just by living and working here. We all need something to change to get this horse running fast again.

Jason Murphy is an economist. He is the author of the new book Incentivology | @jasemurphy


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