Is the Aussie economic system again? Is it time to have fun? Reduce free? Purchase a few Mercedes for the children and put an enormous new renovation on your own home?
For those who take a look at the unemployment knowledge that got here out this week you is perhaps tempted to conclude sure. I admit, the numbers are good. Very bloody good as I’m about to point out you. However don’t name up the financial institution for 1,000,000 greenback mortgage simply but.
The economic system has another large hurdle to recover from. As we’ll see within the Olympics later this 12 months (if they actually happen!), it solely takes one hurdle to make you fall flat in your face.
First let’s take a look at the good things. Australians are streaming again into work at a speedy fee and the unemployment scenario is best than we dreamed it could possibly be. This subsequent chart reveals our present employment scenario on prime of the forecast situations launched by the RBA in Might.
The RBA had a “baseline” state of affairs, a “draw back” state of affairs with very excessive unemployment and an “upside” state of affairs with decrease unemployment. Seven months later, actuality turned out even higher than the upside state of affairs. That’s a triumph.
One other signal of how properly issues are going is the variety of individuals within the labour power proper now. Normally recessions end in much less individuals searching for work as a result of jobs aren’t on the market they usually get discouraged. However proper now extra persons are working or searching for work than ever earlier than.
That is known as the labour power participation fee and it hit a file in December 2020. You’ll often anticipate to see file labour power participation within the good occasions, not within the aftermath of a recession. This simply goes to point out how sturdy the financial restoration is trying proper now.
THE BIG HURDLE
Quickly the economic system should work with out its security web. And that security web is huge.
Simply take a look at this chart from Commonwealth Financial institution displaying how a lot of the additional cash touchdown in individuals’s financial institution accounts is from wages versus authorities funds. The black line reveals how a lot larger revenue is now in comparison with final 12 months – about 10 per cent larger.
The yellow and inexperienced bars present the place that carry in revenue is coming from. The yellow bars are authorities advantages they usually account for far more of the rise in incomes than the inexperienced bars, representing wages and salaries paid.
So when JobSeeker and the JobKeeper complement are lastly turned off on the finish of March, the black line goes to fall rather a lot. A lot much less cash from authorities funds can be flowing in and incomes will tumble. The query is what occurs then.
Most households have saved up some huge cash over the pandemic. The federal government hopes individuals will dip into these new financial savings to maintain spending even when incomes fall. However what if that doesn’t occur? What if we resolve to hoard our cash and defend our financial institution balances because the economic system falls aside round us?
That is the paradox of thrift – one particular person being cautious with their cash is a good suggestion. But when we’re all cautious with our cash on the identical time, that accelerates an financial downturn. In any case, one particular person’s spending is one other particular person’s revenue.
THE POWER OF GOVERNMENT MIGHT BE SHOWN TWICE
The 2 elements of this story are linked by one frequent thread: Authorities spending. An unlimited tsunami of presidency spending has soaked the Australian economic system within the final 12 months, inundating nearly each nook of Australia and turning unhealthy occasions to good for a lot of companies and households.
That’s why the unemployment scenario is so significantly better than we thought. The federal government spending labored even higher than anticipated to make the economic system wholesome.
We bought an upside shock when the spending began. Are we going to be stunned once more with a draw back when the spending stops on the finish of March? For those who’re planning a splurge, it is perhaps value maintaining a tally of what occurs in April.