Friday, June 19, 2009

As our government racks up its credit card bill...

we're paying ours down, for the first time

Our credit card debt is falling for the first time on record.

Reserve Bank figures released yesterday that Australians each owed an average of $3080 on cards in April, some $37 less than a year before. It's the first year in which credit card debt has fallen in the 14 years figures have been collected.

A separately-released Melbourne Institute survey finds that more of us are saving relative to those going into debt...

...with the so-called Household Financial Conditions Index climbing from 28.3 to 31.5 since March.

"This survey was conducted this month after most tax payers had received a one-off stimulus payment, said Institute research fellow Michael Chua. "That could account for the boost in conditions."

Australians are rapidly turning away from using credit cards to obtain cash, with the number of cash advances falling further in April to an 11-year low. Only 1 in 6 cardholders used their cards to obtain cash in April, down from 1 in 5 a year previously.

Import figures also released yesterday suggest we are spending ever more cautiously. Imports slid a further 5 per cent in May to be down 15 per cent over the year.


carbonsink said...

Yep, we're contracting our way to prosperity! Big drops in machinery and manufactured goods, means business is investing big time ... not. If this keeps up, we could see net exports add 5% to GDP in Q2.

Meanwhile KPMG has done a survey of privately-owned businesses...

more than half of all the firms had laid off staff in the previous six months, because of the slowdown. "A further one-quarter intend to cut their head count over the next six to 12 months and, of these, half expected to cut staff by five to 10 per cent," the report said.

But, in a bid to cut their financial liabilities and prevent redundancies, 27 per cent of firms were asking employees to take long-service leave, 50 per cent had requested workers take annual leave and 20 per cent asked staff to work reduced hours.

Almost half of all companies (43 per cent) had also put a freeze on salary increases.

Worryingly, for the coming year, the survey revealed that 42 per cent of firms had cancelled major projects or business expansion plans, compared to 15 per cent in 2008.

Almost all of the rest had put their plans on ice, exacerbating a massive fall in business investment seen right across the economy.

"That's a worrying trend because business investment was a big factor in keeping Australia out of recession last year," Mr Oliver said. But companies are clearly worried, with 26 per cent of firms expecting their revenues to fall over the coming 12 months.

"Of the remainder, nearly half are forecasting revenue growth of five per cent or less. More than two-thirds of all respondents believe the economy remains in a downward cycle. These are not boom-time figures," the report said. About 65 per cent of companies rated their outlook as "poor" or "very poor" for the coming six to 12 months, with only 6.5 per cent rating the outlook as "good" or "very good."

No recession in Australia? Bollocks!

John Humphreys said...

This seems to support the Kirchner/Davidson position that most of the stimulus will be impotent due to Ricardian Equivalence.

Peter Martin said...

It could.

It seems to broadly be the case that when the government saves consumers dissave, and when the government dissaves, consumers save.

But the causality could be the other way around.

What if I had titled my post:

"As we pay down our credit card bills...

...our government racks up its."

carbonsink said...

This seems to support the Kirchner/Davidson position that most of the stimulus will be impotent due to Ricardian Equivalence

Lets think now, are people saving like crazy because they think the government is borrowing too much, or because they're really worried about losing their jobs?

Lets do a poll of three:

- I'm saving like crazy because my company's revenues have collapsed. I I don't give a moment's thought when organising my personal finances to what the govt is doing, although I was really grateful to get the $900!

- Pete, how about you? Fairfax isn't exactly going gangbusters these days. Can newspapers afford quality journalism long term? When you decide not to buy something are you thinking "Hey, I'm really worried about my job at Fairfax" or are you thinking "My God, they're going to be raising my taxes in a few years time to pay for all this debt"

- John, how about you and the LDP crew? Do any of you guys have real jobs are you all holed up in academia and right-wing think tanks, churning out op-eds for the Oz?

carbonsink said...

D&B forecasts -0.9% GDP for 2009

The report cited sharp falls in exports and lack of available credit as a drag on the economy.

It said companies and households were consolidating their balance sheets by paying down debt, which dampened consumer spending and kept a lid on business investment.

"With company profitability hit and investment demand sharply lower, we expect the impact of the worsening terms of trade to drag the economy down further," the report said.

Growth could decline by more than expected if the global economic recovery took longer than expected and demand for commodities stayed weak, the report also said.

And what if the recent demand for commodities was all stockpiling and speculation?

carbonsink said...

Gittins: More bad news to come

What bad news? The significant loss of national income caused by the marked reduction in coal and iron ore prices, weak export volumes, plunging business investment spending, the effects of the cash bonuses wearing off before the effects of increased capital works spending kick in, and the effect on consumer confidence as the unemployment rate climbs inexorably towards 8.5 per cent.

Ross forgets to mention the loss of export income due to the >25% appreciation of the Australian dollar since March, and the fact that plunging tax receipts from the big miners will severely limit the government's scope for further stimulus.

God help us if China's 'recovery' falters, or the green shoots are nothing but weeds.

Pete (not Peter Martin) said...

Good posts carbonsink. I enjoy reading your commentary. I really get sick of everyone blowing smoke up the rear ends of supposed experts.

Most of them didn't expect the GFC (even though there certainly was information out there warning of it - I was reading it), therefore most of them aren't worth listening to.

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