1 00:00:06,000 --> 00:00:07,960 Speaker 1: Welcome to Fear and Greed Q and A where we 2 00:00:08,000 --> 00:00:12,080 Speaker 1: ask and answer questions about business, investing, economics, politics and more. 3 00:00:12,119 --> 00:00:14,640 Speaker 1: I'm Michael Thompson and every Monday morning we are joined 4 00:00:14,640 --> 00:00:17,560 Speaker 1: by economists Stephen Coucoulis to look at the week ahead. 5 00:00:17,880 --> 00:00:19,800 Speaker 1: You'll find him at the kook dot com. That's th 6 00:00:20,440 --> 00:00:24,360 Speaker 1: kouk dot com and on ex using the handle the Kirk. Stephen, 7 00:00:24,400 --> 00:00:25,520 Speaker 1: Good morning, you're. 8 00:00:25,440 --> 00:00:27,200 Speaker 2: Good morning, Michael, and a happy New year. 9 00:00:27,560 --> 00:00:30,040 Speaker 1: Happy new year to you too. This is our first 10 00:00:30,200 --> 00:00:33,920 Speaker 1: our first one for twenty twenty six, and so it 11 00:00:33,960 --> 00:00:36,159 Speaker 1: feels like we've got a lot to cover, a massive 12 00:00:36,240 --> 00:00:38,800 Speaker 1: year ahead. Maybe the best place to start is kind 13 00:00:38,840 --> 00:00:42,720 Speaker 1: of the state of play at the moment, because over 14 00:00:42,760 --> 00:00:44,400 Speaker 1: the last couple of weeks we have had a fair 15 00:00:44,440 --> 00:00:48,080 Speaker 1: bit of data coming through. Maybe we'll go to the 16 00:00:48,120 --> 00:00:52,879 Speaker 1: week before last and the November inflation figure that we 17 00:00:53,000 --> 00:00:56,840 Speaker 1: had come through because it's all important right ahead of 18 00:00:56,880 --> 00:01:01,279 Speaker 1: the Reserve Bank next meeting, which is in a fortnight. 19 00:01:01,640 --> 00:01:04,760 Speaker 2: Correct, and the inflation number was a little bit better 20 00:01:04,800 --> 00:01:07,160 Speaker 2: than expected. You know, we had that shock with the 21 00:01:07,200 --> 00:01:11,319 Speaker 2: September quarter data late last year which basically redrew the 22 00:01:11,360 --> 00:01:15,120 Speaker 2: map on monetary policy expectations and rate cuts which were 23 00:01:15,200 --> 00:01:18,120 Speaker 2: being sort of spoken about priced in at that stage 24 00:01:18,280 --> 00:01:20,960 Speaker 2: not only were taken out, but a complete one eighty 25 00:01:21,000 --> 00:01:24,240 Speaker 2: degree turn occurred where rate hikes were priced in. That's 26 00:01:24,240 --> 00:01:26,880 Speaker 2: why the inflation number was important. It showed a bit 27 00:01:26,920 --> 00:01:30,160 Speaker 2: of a pullback. So the headline figure came down from 28 00:01:30,200 --> 00:01:33,399 Speaker 2: three point eight percent to three point four percent, so 29 00:01:33,480 --> 00:01:37,240 Speaker 2: still above the target, but encouragingly, some of those high 30 00:01:37,319 --> 00:01:39,720 Speaker 2: numbers are dropping out of the run rate. The trimmed 31 00:01:39,760 --> 00:01:42,080 Speaker 2: mean edged down one tenth of a percent as well 32 00:01:42,120 --> 00:01:46,360 Speaker 2: to still be above three percent. So inflation still elevated. 33 00:01:46,400 --> 00:01:50,080 Speaker 2: But there's a discussion going on at the RBA amongst 34 00:01:50,240 --> 00:01:55,720 Speaker 2: US economists. Was that September quarter inflation result full of 35 00:01:55,800 --> 00:01:59,520 Speaker 2: what we might call quirks that sort of distored the 36 00:01:59,560 --> 00:02:04,440 Speaker 2: strength of inflation. Things like the electricity subsidies being phased out, 37 00:02:04,440 --> 00:02:08,440 Speaker 2: things like public transport fares which are council rates, nothing 38 00:02:08,480 --> 00:02:10,440 Speaker 2: to do with monetary policy. They all occurred in the 39 00:02:10,440 --> 00:02:13,760 Speaker 2: September quarter. There's a debate whether that was a true 40 00:02:13,760 --> 00:02:15,280 Speaker 2: reflection of an inflation. 41 00:02:16,040 --> 00:02:19,160 Speaker 1: In terms of that November figure, I was reading some 42 00:02:19,240 --> 00:02:22,720 Speaker 1: commentary around it and how much of it could just 43 00:02:22,800 --> 00:02:26,520 Speaker 1: be temporary, this cooling of inflation for that month because 44 00:02:26,560 --> 00:02:29,360 Speaker 1: of it being November, because of Black Friday, and a 45 00:02:29,360 --> 00:02:32,679 Speaker 1: lot of discounting done by retailers as well. How much 46 00:02:32,720 --> 00:02:35,760 Speaker 1: does that impact on an inflation figure, just something as 47 00:02:35,800 --> 00:02:40,000 Speaker 1: real world as shops giving thirty percent off. 48 00:02:39,080 --> 00:02:42,799 Speaker 2: Off furniture and clothing and some electronic goods, these sorts 49 00:02:42,840 --> 00:02:45,480 Speaker 2: of things, which were the areas where the discounts were 50 00:02:45,520 --> 00:02:49,200 Speaker 2: most prevalent. Yes, it does have a big impact. And 51 00:02:49,240 --> 00:02:52,480 Speaker 2: that's why while we all love the monthly inflation of US, 52 00:02:52,480 --> 00:02:55,200 Speaker 2: it's a lot more high frequency the information we get 53 00:02:55,240 --> 00:02:58,440 Speaker 2: on inflation. They are subject to those very quirks that 54 00:02:58,480 --> 00:03:01,280 Speaker 2: you mentioned, the Black Friday sales, things that often have 55 00:03:01,360 --> 00:03:03,760 Speaker 2: a big impact to things like petrol prices. You know, 56 00:03:04,320 --> 00:03:06,280 Speaker 2: something happens to the petrol price o case, up twenty 57 00:03:06,360 --> 00:03:08,960 Speaker 2: cents a leader or down ten cents a leader in 58 00:03:09,040 --> 00:03:10,720 Speaker 2: that month, and then it reverts back to where it 59 00:03:10,760 --> 00:03:14,160 Speaker 2: was so month and month, yet greater volatility. So look, 60 00:03:14,240 --> 00:03:16,600 Speaker 2: as I'm saying, the juries out on this inflation story, 61 00:03:17,840 --> 00:03:21,600 Speaker 2: quirks up, quirks down. So we really want to see 62 00:03:21,600 --> 00:03:25,280 Speaker 2: the December quarter numbers, which actually come out next week. 63 00:03:25,639 --> 00:03:28,000 Speaker 1: All right, So the next piece of the puzzle, then, 64 00:03:28,160 --> 00:03:32,000 Speaker 1: is something else that came out last week consumer spending 65 00:03:33,120 --> 00:03:35,000 Speaker 1: in the household consumption is picking out. 66 00:03:35,040 --> 00:03:39,200 Speaker 2: The house of spending numbers are really encouraging. We've had 67 00:03:39,240 --> 00:03:41,640 Speaker 2: more than one month of increase. Last week we saw 68 00:03:42,040 --> 00:03:45,360 Speaker 2: the another one percent month on month increase again leaked 69 00:03:45,360 --> 00:03:49,760 Speaker 2: to the Black Friday sales, it appears, but nonetheless, we 70 00:03:49,840 --> 00:03:52,960 Speaker 2: consumers are perhaps benefiting from an improved cash flow from 71 00:03:53,000 --> 00:03:56,280 Speaker 2: the interestraight cuts that we saw last year. Wages have 72 00:03:56,360 --> 00:03:58,480 Speaker 2: picked up a little bit, not super strong, but we're 73 00:03:58,520 --> 00:04:02,280 Speaker 2: actually getting some wage increases. Is that feeding into consumer spending? 74 00:04:02,600 --> 00:04:03,400 Speaker 2: Probably is. 75 00:04:05,360 --> 00:04:08,120 Speaker 1: The thing that we're the big I mean, there's so 76 00:04:08,200 --> 00:04:10,840 Speaker 1: much happening at the moment, but the headline coming up 77 00:04:10,880 --> 00:04:13,280 Speaker 1: this week, the big thing that we're looking forward to 78 00:04:13,360 --> 00:04:16,400 Speaker 1: is the labor force data coming out on Thursday of 79 00:04:16,440 --> 00:04:20,200 Speaker 1: this week. What are we looking to see there because 80 00:04:20,240 --> 00:04:23,120 Speaker 1: the RBA pays such close attention to it because they have, 81 00:04:23,320 --> 00:04:25,120 Speaker 1: as you say, this dual mandate. 82 00:04:25,640 --> 00:04:28,760 Speaker 2: Really important us. Yeah, the focus is inflation, of course, 83 00:04:28,800 --> 00:04:31,200 Speaker 2: but the and this is where the what do we 84 00:04:31,279 --> 00:04:34,640 Speaker 2: call it? The sort of patchwork nature of the economy 85 00:04:34,680 --> 00:04:37,600 Speaker 2: is so evident right now. The activity indicators that inflation 86 00:04:37,680 --> 00:04:41,159 Speaker 2: a little higher. The labor force numbers have been quite weak. 87 00:04:41,240 --> 00:04:43,479 Speaker 2: The last four or five months. We've had a real 88 00:04:43,640 --> 00:04:46,560 Speaker 2: cooling in employment growth. A lot of it appears to 89 00:04:46,600 --> 00:04:49,720 Speaker 2: be linked to public sector employment stalling. You know, the 90 00:04:50,640 --> 00:04:53,520 Speaker 2: real driver of employment growth the last two years was 91 00:04:53,560 --> 00:04:58,760 Speaker 2: a big hiring of nurses and teachers and educators and 92 00:04:58,960 --> 00:05:01,640 Speaker 2: in the public sector, which I won't say distorted the numbers. 93 00:05:01,640 --> 00:05:04,040 Speaker 2: They are all important jobs, of course they are, but 94 00:05:04,080 --> 00:05:06,120 Speaker 2: that hiring has probably come to an end, so we're 95 00:05:06,120 --> 00:05:08,680 Speaker 2: relying on the private sector. So we've had three or 96 00:05:08,680 --> 00:05:12,120 Speaker 2: four months where employment growth has been very weak. The 97 00:05:12,160 --> 00:05:15,440 Speaker 2: market's looking for about a plus twenty thousand for employment, 98 00:05:15,520 --> 00:05:18,520 Speaker 2: the unemployment rate to be steadied around about four point 99 00:05:18,600 --> 00:05:22,919 Speaker 2: three four point four percent. Any weaker than that and 100 00:05:22,960 --> 00:05:24,839 Speaker 2: then we can sort of push back the timing of 101 00:05:24,839 --> 00:05:27,800 Speaker 2: those rate hikes, I would think, so, all eyes on 102 00:05:28,240 --> 00:05:31,400 Speaker 2: the labor force numbers. On Thursday, and just as a 103 00:05:31,440 --> 00:05:33,960 Speaker 2: little addendum to that, last week we saw the job 104 00:05:34,080 --> 00:05:37,640 Speaker 2: vacancy series from the Bureau of Statistics, another small negative 105 00:05:37,920 --> 00:05:41,599 Speaker 2: and as a leading indicator of future hiring, it's suggesting, yeah, 106 00:05:41,600 --> 00:05:44,560 Speaker 2: the labor market's likely to be a little weaker rather 107 00:05:44,600 --> 00:05:46,920 Speaker 2: a little bit stronger in the next six months. 108 00:05:47,400 --> 00:05:51,000 Speaker 1: Okay, can I get you to put on your your 109 00:05:51,040 --> 00:05:53,880 Speaker 1: business advisor hat right, because I know you speak to 110 00:05:53,960 --> 00:05:56,240 Speaker 1: a lot of businesses around the country. But if you are, 111 00:05:56,760 --> 00:05:59,839 Speaker 1: if you're a small or medium sized business or working 112 00:05:59,880 --> 00:06:03,680 Speaker 1: in a larger business, what are you watching this year? 113 00:06:03,720 --> 00:06:07,080 Speaker 1: What is the most important thing that will contribute to 114 00:06:07,080 --> 00:06:10,000 Speaker 1: your growth? Is it watching inflation, what it means for 115 00:06:10,080 --> 00:06:12,080 Speaker 1: interest rates? Is it jobs? Is about how hard it 116 00:06:12,160 --> 00:06:14,560 Speaker 1: is to find workers. Is it wages? How much you 117 00:06:14,560 --> 00:06:16,880 Speaker 1: are then having to pay people and the pressures that 118 00:06:16,920 --> 00:06:20,360 Speaker 1: are on wage rises. What are you watching if you 119 00:06:20,400 --> 00:06:21,440 Speaker 1: are running a business? 120 00:06:22,400 --> 00:06:25,240 Speaker 2: The thing that I think is most important. It sort 121 00:06:25,240 --> 00:06:27,159 Speaker 2: of makes sense in a way when I say this 122 00:06:27,920 --> 00:06:31,039 Speaker 2: is economic activity. You want people to be clicking on 123 00:06:31,080 --> 00:06:33,000 Speaker 2: your website, you want them to be knocking on your door, 124 00:06:33,040 --> 00:06:35,240 Speaker 2: you want them to be ringing up ordering stuff from you. 125 00:06:35,360 --> 00:06:38,400 Speaker 2: So it's about the strength of the economy, and that's 126 00:06:38,440 --> 00:06:41,039 Speaker 2: linked to both consumer and business confidence. You know, when 127 00:06:41,040 --> 00:06:44,839 Speaker 2: we consumers are feeling you know, cost of living pressure, 128 00:06:45,040 --> 00:06:47,360 Speaker 2: or unemployment goes up and you don't have a job, 129 00:06:47,480 --> 00:06:49,960 Speaker 2: or you're fearing about your job security. We tend to 130 00:06:50,040 --> 00:06:52,480 Speaker 2: hunt it out. We don't spend as much, so we're 131 00:06:52,480 --> 00:06:53,960 Speaker 2: not going to be knocking on the door of a 132 00:06:53,960 --> 00:06:56,480 Speaker 2: business and saying, hey, I want to buy some extra 133 00:06:56,520 --> 00:06:59,960 Speaker 2: items from you. So, you know, a funny way, it's turnover. 134 00:07:00,080 --> 00:07:02,960 Speaker 2: It's trading conditions that the most important. And on that 135 00:07:03,000 --> 00:07:04,800 Speaker 2: we go back to those other things that you mentioned. 136 00:07:05,040 --> 00:07:08,320 Speaker 2: What happens to interest rates? Are they going up or 137 00:07:08,360 --> 00:07:10,520 Speaker 2: down or you know, we've got a very high probability 138 00:07:10,520 --> 00:07:12,400 Speaker 2: in my view, that we get all through twenty twenty 139 00:07:12,400 --> 00:07:14,320 Speaker 2: six with rates on hold. It seems as if that 140 00:07:14,360 --> 00:07:16,760 Speaker 2: could be the case. Even though we're going to speculate 141 00:07:16,800 --> 00:07:19,080 Speaker 2: it about it week in week out, the RBA may 142 00:07:19,160 --> 00:07:22,400 Speaker 2: do nothing, which is probably not a bad outcome. So 143 00:07:22,440 --> 00:07:24,720 Speaker 2: it's that sort of activity. I think inflation is not 144 00:07:24,800 --> 00:07:28,000 Speaker 2: a major concern as we're just discussing. I think some 145 00:07:28,040 --> 00:07:30,200 Speaker 2: of those quirky things will wash out of the data 146 00:07:30,320 --> 00:07:33,240 Speaker 2: in the coming months, So inflation, you know, the cost 147 00:07:33,240 --> 00:07:35,800 Speaker 2: of living pressures, that cost of business pressures that we 148 00:07:35,840 --> 00:07:39,480 Speaker 2: saw two years ago are probably not as acute as 149 00:07:39,520 --> 00:07:42,280 Speaker 2: they have been in the past. So we just want 150 00:07:42,320 --> 00:07:45,480 Speaker 2: people to get out, ramp up their spending or maintain 151 00:07:45,520 --> 00:07:48,240 Speaker 2: a decent, sustainable level of spending growth, because that's the 152 00:07:48,240 --> 00:07:49,680 Speaker 2: best thing that businesses can hope for. 153 00:07:50,040 --> 00:07:52,440 Speaker 1: Okay, and what about house prices that as part of that, 154 00:07:52,520 --> 00:07:56,200 Speaker 1: and the growth in home values and the impact that 155 00:07:56,200 --> 00:07:59,120 Speaker 1: that has on consumers. Because of the wealth effects, we 156 00:07:59,200 --> 00:08:01,360 Speaker 1: feel more wealthy, so we go out and spend more. 157 00:08:01,480 --> 00:08:03,640 Speaker 1: All of that. You just want to see that continuing 158 00:08:03,680 --> 00:08:04,200 Speaker 1: to tick over. 159 00:08:04,560 --> 00:08:07,480 Speaker 2: Yeah, and even the ASX two for those sort of 160 00:08:07,520 --> 00:08:09,280 Speaker 2: older folk with retires or people who just pay a 161 00:08:09,320 --> 00:08:11,720 Speaker 2: lot of attention to the super fund, Yes, it's nice. 162 00:08:11,720 --> 00:08:13,360 Speaker 2: When it goes up. You feel a bit more confident 163 00:08:13,400 --> 00:08:16,720 Speaker 2: and you don't probably feel the need to have discretionary 164 00:08:16,760 --> 00:08:18,880 Speaker 2: saving because oh my super fund's gone up in value, 165 00:08:18,920 --> 00:08:20,600 Speaker 2: so I'm going to go out and spend a bit more. 166 00:08:20,640 --> 00:08:23,440 Speaker 2: So that wealth effect that you mentioned is very powerful. 167 00:08:24,040 --> 00:08:26,400 Speaker 2: House prices have just eased a bit in the last 168 00:08:26,440 --> 00:08:29,080 Speaker 2: few months. They had a real surge in the middle 169 00:08:29,120 --> 00:08:32,000 Speaker 2: part of last year, but just Sydney and Melbourne of 170 00:08:32,520 --> 00:08:34,840 Speaker 2: down zero point one percent, so it's basically flat. So 171 00:08:34,880 --> 00:08:37,319 Speaker 2: they've just softened a bit. And look, I don't think 172 00:08:37,320 --> 00:08:39,520 Speaker 2: we're heading for a house price crash or anything like that, 173 00:08:39,600 --> 00:08:42,559 Speaker 2: but we do know that house and supply has picked up. 174 00:08:42,880 --> 00:08:46,679 Speaker 2: We do know that immigration issues have moderated, that the 175 00:08:46,800 --> 00:08:48,920 Speaker 2: number of people coming in have moderated. That takes a 176 00:08:48,920 --> 00:08:52,400 Speaker 2: bit of pressure off the housing market. So house price 177 00:08:52,520 --> 00:08:56,000 Speaker 2: is probably broadly flat, although having said that, there's a 178 00:08:56,120 --> 00:09:00,679 Speaker 2: huge divergence between cities, you know, the Perth and Adelaide 179 00:09:00,760 --> 00:09:05,199 Speaker 2: and Brisbane booming, Sydney Melbourne probably a little bit softer 180 00:09:05,280 --> 00:09:07,760 Speaker 2: because they're where the pressures are in the economy. 181 00:09:07,960 --> 00:09:10,040 Speaker 1: It's going to be a very big year. Indeed, Stephen, 182 00:09:10,040 --> 00:09:11,240 Speaker 1: thank you for your time this morning. 183 00:09:11,520 --> 00:09:12,200 Speaker 2: Thank you, Michael. 184 00:09:12,520 --> 00:09:15,200 Speaker 1: That was economist Stephen Coo. Coolis better known as the Kirk. 185 00:09:15,320 --> 00:09:17,520 Speaker 1: You can find him at the kook dot com and 186 00:09:17,600 --> 00:09:19,840 Speaker 1: follow him on x using the handle of the Kirk. 187 00:09:19,920 --> 00:09:21,920 Speaker 1: I'm Michael Thompson and this is Fear and Greed Q 188 00:09:22,080 --> 00:09:22,240 Speaker 1: and a