As we gear up for Christmas spending, things should be pointing to a bumper lot of sales and yet despite excellent employment news our level of spending and consumer confidence remains below where it was last year. With wages growth remaining weak and much of the jobs growth geared towards lower paying work, maybe what is needed is a jolt of optimism – and just maybe this could come from this week’s overwhelming victory for marriage equality.
It has to be said that the employment news is overwhelmingly good. Employment has now been growing in trend terms every month since December 2013, and according to the more erratic seasonally adjusted measure, it has been growing for 13 straight months – the best consecutive run since 1994.
Right now nearly 77% of all 25 to 64 year olds are working – the highest level ever recorded, largely off the back of a record number of women in the workforce.
And best of all, the jobs have been full-time.
In the past 12 months hours worked has risen by 3.1% – the best result since December 2010 – and full-time employment has grown by 3.6% – the strongest growth since June 2007.
It is undeniably good news. You can quibble all you like about what is classed as employment, but having 289,000 more people working full-time than a year ago is hard to spin as a negative.
And yet despite a nice recent rise, the latest ANZ-Roy Morgan consumer confidence measure remains at a point actually lower than it was this time last year. And last year, it should be recalled, was a terrible year for employment – it was one of the few calendar years where full-time employment fell.
The level of growth of our retail spending is also lower than it was this time last year. Every year around this time we start getting stories about Christmas sales and stores gearing up for a booming December. Most often they are just retail industry spin – trying to get us believing that going out and shopping is being done in big numbers so we shouldn’t feel bad about doing it ourselves – indeed we should be doing it!
But this year such stories should be true. After all the unemployment rate of 5.4% is the lowest it has been since January 2013.
And while, somewhat oddly, employment growth and retail spending growth don’t line up all that well, it is a bit odd that in light of the good employment news, overall we are spending less in the shops than when the job situation was worse a year ago.
One reason might be that in the past 12 months most of the jobs have come from industries that are generally lower paying. Over the last year two thirds of the increase in net employment has come in industries that have lower average earnings than the national average.
This is an issue the Reserve Bank highlighted in its latest statement of monetary policy when it noted that “employment growth remains strongest in the household services sector, particularly in health care and social assistance”.
It also noted this could mean average earnings are lower than otherwise would be expected because there is “more growth in lower-income jobs”.
What is worse is the Reserve Bank has also noted that new employment within industries is geared towards lower paying jobs. It noted anecdotal reports that suggest “an increase in the proportion of new employees hired on lower salaries than their predecessors”.
So yes, we are seeing a solid increase in employment, but this is not resulting in a rise in overall average incomes like we would expect and as a result we are not seeing a similar boost in spending or consumer confidence.
And when you throw in to the mix the fact that wages growth across the board is down it makes for a disconnect between the unemployment rate and our desire to spend.
But perhaps there is some hope.
Often when talking of the need to encourage investment, economists talk of “animal spirits” – essentially the need for people to be willing to take a risk and invest because they believe things are going to get better.
In a speech this week, the deputy governor of the Reserve Bank, Guy Debelle listed this as the most powerful reason why non-mining investment has been weak.
A similar case might apply to consumer spending.
One problem with consumer confidence is that it is generally linked with the performance of the government. If people think the government is doing well they are more inclined to think the economy is performing well and also that they are confident things will either stay good or keep improving. This is why ALP and Liberal voters often swap their levels of confidence from positive to negative after a change of government.
With the government mired in bad polls, this is unlikely to change, but perhaps the overwhelming yes vote result in the marriage equality survey might produce some sense of optimism that things are not so bad.
Of course should the conservatives forces conspire to bog the process down any optimism would probably dissipate but were it all to go through quickly, perhaps people might gain some sense that life is not so bad.
And while it is unlikely to provide a significant increase in total spending, at the very least there should be a bit of a boost from shopping for some long waited for weddings in January.