1 00:00:07,800 --> 00:00:11,010 Sean Aylmer: Welcome to Fear and Greed: the week ahead. I'm Sean Aylmer, and as 2 00:00:11,010 --> 00:00:13,830 Sean Aylmer: always, I'm joined by economist Stephen Koukoulas. You'll find him 3 00:00:13,830 --> 00:00:16,049 Sean Aylmer: at thekouk. com, T- H- E K- O- U- k. 4 00:00:16,230 --> 00:00:19,860 Sean Aylmer: com. And on Twitter using the handle TheKouk. Stephen, you'd 5 00:00:19,860 --> 00:00:21,210 Sean Aylmer: be exhausted after last week. 6 00:00:21,780 --> 00:00:24,960 Stephen Koukoulas: Oh, Sean, what a week it was. I'm battered and 7 00:00:25,110 --> 00:00:28,710 Stephen Koukoulas: bruised. The RBA shocked me and a lot of other 8 00:00:28,710 --> 00:00:32,460 Stephen Koukoulas: people. We had pretty soggy GDP numbers. We had a 9 00:00:32,460 --> 00:00:35,999 Stephen Koukoulas: Bank of Canada rate hike and of course our RBA 10 00:00:36,000 --> 00:00:38,850 Stephen Koukoulas: a rate hike. So yeah, plenty of news last week 11 00:00:38,850 --> 00:00:42,450 Stephen Koukoulas: and hopefully this week's a bit quieter, although there are 12 00:00:42,510 --> 00:00:44,310 Stephen Koukoulas: some important things still to come. 13 00:00:44,760 --> 00:00:46,949 Sean Aylmer: So I mean, it is kind of what ... Last week 14 00:00:46,950 --> 00:00:49,680 Sean Aylmer: was like Christmas week for economists, so much to do. 15 00:00:49,860 --> 00:00:55,080 Sean Aylmer: However, where we stand today, it doesn't look that good 16 00:00:55,080 --> 00:00:56,100 Sean Aylmer: for the local economy. 17 00:00:57,120 --> 00:01:01,260 Stephen Koukoulas: Things are slowing down. The interesting thing to me in 18 00:01:01,260 --> 00:01:03,479 Stephen Koukoulas: terms of the economic data, not so much the RBA 19 00:01:03,480 --> 00:01:05,849 Stephen Koukoulas: action, was in the national accounts are always very good. 20 00:01:05,880 --> 00:01:09,389 Stephen Koukoulas: The national accounts include the GDP numbers and we know that 21 00:01:09,389 --> 00:01:13,380 Stephen Koukoulas: growth slowed to just 0. 2% in the March quarter. In 22 00:01:13,380 --> 00:01:16,800 Stephen Koukoulas: per capita terms it was - 0. 2. So we've got that 23 00:01:16,800 --> 00:01:18,990 Stephen Koukoulas: slowdown occurring and the economy had to slow down. It's 24 00:01:18,990 --> 00:01:23,700 Stephen Koukoulas: important to remember that we were overheating basically during 2022 25 00:01:23,700 --> 00:01:26,039 Stephen Koukoulas: which was one of the reasons, one of many, for 26 00:01:26,039 --> 00:01:28,410 Stephen Koukoulas: the inflation spike. So it had to slow down. That's 27 00:01:28,410 --> 00:01:31,410 Stephen Koukoulas: one thing. However, when we look at the subset, we 28 00:01:31,410 --> 00:01:33,420 Stephen Koukoulas: can see it's the household sector that's under a lot 29 00:01:33,420 --> 00:01:36,000 Stephen Koukoulas: of pressure and for obvious reasons, cost of living, real 30 00:01:36,000 --> 00:01:40,350 Stephen Koukoulas: wages going backwards, inflation rising more quickly than wages and 31 00:01:40,590 --> 00:01:43,020 Stephen Koukoulas: of course, of course, of course, interest rates going up. 32 00:01:43,319 --> 00:01:46,769 Stephen Koukoulas: So consumers actually had the lowest household saving rate in 33 00:01:46,770 --> 00:01:49,380 Stephen Koukoulas: 15 years. So we are now getting to the position 34 00:01:49,380 --> 00:01:51,840 Stephen Koukoulas: where consumers are not adding much to their savings because 35 00:01:51,840 --> 00:01:55,350 Stephen Koukoulas: they have to pay for cost of living issues and 36 00:01:55,410 --> 00:01:56,310 Stephen Koukoulas: for their mortgage. 37 00:01:56,940 --> 00:02:00,660 Sean Aylmer: Okay. So I mean that's the National Accounts. What about 38 00:02:00,660 --> 00:02:02,429 Sean Aylmer: rates do you think we're going to ... I mean, the 39 00:02:02,429 --> 00:02:06,299 Sean Aylmer: household sector's hurting, that's clear. What does the reserve bank 40 00:02:06,420 --> 00:02:10,650 Sean Aylmer: do? It wants to lift rates further to cull inflation 41 00:02:10,650 --> 00:02:13,260 Sean Aylmer: because it's still too high, but it's got this household 42 00:02:13,260 --> 00:02:14,488 Sean Aylmer: sector that's really hurting. 43 00:02:15,090 --> 00:02:17,250 Stephen Koukoulas: The household sector's hurting. And the interesting thing too is that 44 00:02:17,309 --> 00:02:22,980 Stephen Koukoulas: the global economy's weakening. It's curious to see the German 45 00:02:23,038 --> 00:02:26,190 Stephen Koukoulas: economic data confirming a recession. They've had two consecutive quarters 46 00:02:26,190 --> 00:02:29,070 Stephen Koukoulas: of negative GDP, the whole eurozone's in the same area. 47 00:02:29,070 --> 00:02:32,460 Stephen Koukoulas: So there's a recession in Europe, which is a big part 48 00:02:32,460 --> 00:02:36,330 Stephen Koukoulas: of the global economy. China, after that initial euphoria from 49 00:02:36,330 --> 00:02:39,599 Stephen Koukoulas: the post- COVID reopening a few months ago, has now 50 00:02:39,599 --> 00:02:43,138 Stephen Koukoulas: sort of fallen over and they're actually talking easier policy 51 00:02:43,139 --> 00:02:45,450 Stephen Koukoulas: there in China because the economy is so weak and 52 00:02:45,450 --> 00:02:50,340 Stephen Koukoulas: inflation in China, just by the way, is 0%. So 53 00:02:50,340 --> 00:02:52,889 Stephen Koukoulas: you've got these things and the RBA have got a bee 54 00:02:52,889 --> 00:02:55,740 Stephen Koukoulas: in their bonnet about wages and productivity. I think they 55 00:02:55,740 --> 00:02:59,579 Stephen Koukoulas: got, well, a bit of a nasty shock, if we 56 00:02:59,579 --> 00:03:02,340 Stephen Koukoulas: can call it that, from the Fair Work Commission ruling 57 00:03:02,400 --> 00:03:05,970 Stephen Koukoulas: a couple of weeks ago, the 5. 75% increase in the 58 00:03:05,970 --> 00:03:07,950 Stephen Koukoulas: minimum wage, which sort of parlayed through to a whole 59 00:03:07,950 --> 00:03:09,780 Stephen Koukoulas: lot of other awards. So there's a bit more complexity 60 00:03:09,780 --> 00:03:11,849 Stephen Koukoulas: to it than that. But really they're just at a 61 00:03:11,849 --> 00:03:15,059 Stephen Koukoulas: time when they're sort of hoping and they're still expecting 62 00:03:15,059 --> 00:03:17,399 Stephen Koukoulas: inflation to fall. That's still on the cards, there's no 63 00:03:17,400 --> 00:03:20,910 Stephen Koukoulas: doubt about that. But the trajectory of that slowdown in 64 00:03:20,910 --> 00:03:25,169 Stephen Koukoulas: inflation is something that's probably spooked them. Wages perhaps being 65 00:03:25,169 --> 00:03:28,919 Stephen Koukoulas: a problem. I'm not sure yet whether they're calling that 66 00:03:28,919 --> 00:03:30,990 Stephen Koukoulas: correctly, but they're the ones that pull the trigger on 67 00:03:30,990 --> 00:03:33,209 Stephen Koukoulas: interest rates and they're very, very hawkish. 68 00:03:34,320 --> 00:03:36,179 Sean Aylmer: Okay, so what about this week, Steven? We've got the 69 00:03:36,210 --> 00:03:37,200 Sean Aylmer: labor force figures. 70 00:03:37,830 --> 00:03:39,840 Stephen Koukoulas: Labor force figures, and that's one of the other things 71 00:03:39,840 --> 00:03:42,330 Stephen Koukoulas: that's feeding into wages as we were just discussing, but 72 00:03:42,660 --> 00:03:46,080 Stephen Koukoulas: just the economy more broadly. And last month you might 73 00:03:46,080 --> 00:03:48,240 Stephen Koukoulas: recall that we had a bit of a statistical quirk, 74 00:03:48,240 --> 00:03:52,319 Stephen Koukoulas: maybe. Employment fell by 4, 000 and the unemployment rate 75 00:03:52,320 --> 00:03:55,950 Stephen Koukoulas: kicked up to 3. 7%. So one month's numbers, of 76 00:03:55,950 --> 00:03:58,470 Stephen Koukoulas: course we never get too excited, but here we are, 77 00:03:58,470 --> 00:04:00,780 Stephen Koukoulas: we're going to have a second month's numbers. Look, the 78 00:04:00,780 --> 00:04:04,050 Stephen Koukoulas: market is forecasting a small increase in employment, for the 79 00:04:04,050 --> 00:04:09,420 Stephen Koukoulas: unemployment rate to remain about 3. 7%. Absolutely vital information 80 00:04:09,420 --> 00:04:13,290 Stephen Koukoulas: in terms of the skill shortages, labor shortages, wage pressures, 81 00:04:13,290 --> 00:04:15,630 Stephen Koukoulas: and these sorts of things in the economy. If we 82 00:04:15,630 --> 00:04:18,118 Stephen Koukoulas: were to get a solid number, then that's fine. It 83 00:04:18,120 --> 00:04:21,809 Stephen Koukoulas: validates what the RBA has done perhaps. But the thing 84 00:04:21,809 --> 00:04:24,960 Stephen Koukoulas: which would be, what do we call it? More of 85 00:04:24,960 --> 00:04:27,779 Stephen Koukoulas: a driver of extra volatility in the markets anyway, would 86 00:04:27,779 --> 00:04:29,368 Stephen Koukoulas: be if we get a soggy number, if we get 87 00:04:29,369 --> 00:04:32,670 Stephen Koukoulas: another really tepid increase or a small fall in employment 88 00:04:32,670 --> 00:04:34,859 Stephen Koukoulas: and the unemployment rate creeps up to 3. 8 or 3. 89 00:04:35,130 --> 00:04:37,620 Stephen Koukoulas: 9, then I think we have to have a really 90 00:04:37,620 --> 00:04:41,759 Stephen Koukoulas: serious consideration about just how the labor market's performing and 91 00:04:41,759 --> 00:04:43,260 Stephen Koukoulas: how quickly it can turn. 92 00:04:44,009 --> 00:04:46,109 Sean Aylmer: Okay. The other thing that, well, another thing gets out 93 00:04:46,109 --> 00:04:48,960 Sean Aylmer: this week is the National Australia Bank business conditions and 94 00:04:48,960 --> 00:04:52,170 Sean Aylmer: confidence. One thing from last week's national accounts, which were okay, 95 00:04:53,339 --> 00:04:55,860 Sean Aylmer: is actually business spending, business investment. 96 00:04:56,610 --> 00:04:59,339 Stephen Koukoulas: Indeed. And thank goodness for that. We've known for some 97 00:04:59,339 --> 00:05:02,160 Stephen Koukoulas: time that the NAB survey of business conditions has been 98 00:05:02,160 --> 00:05:04,980 Stephen Koukoulas: a lot more upbeat than consumers. Consumers are very gloomy. 99 00:05:05,339 --> 00:05:08,910 Stephen Koukoulas: But the NAB business confidence measure is sort of at 100 00:05:08,910 --> 00:05:11,760 Stephen Koukoulas: or even slightly above the long run averages that we've 101 00:05:11,760 --> 00:05:14,579 Stephen Koukoulas: been seeing over many decades. So the business sector's actually 102 00:05:14,880 --> 00:05:17,250 Stephen Koukoulas: looking to ramp up their CapEx. And again, in the 103 00:05:17,250 --> 00:05:19,769 Stephen Koukoulas: GDP figures that came out last week, you quite rightly 104 00:05:19,770 --> 00:05:22,680 Stephen Koukoulas: point out that there was an increase in business investment 105 00:05:22,680 --> 00:05:25,200 Stephen Koukoulas: in the March quarter thankfully. And that contributed to the 106 00:05:25,589 --> 00:05:29,370 Stephen Koukoulas: positive GDP result that we saw. So the business confidence 107 00:05:29,430 --> 00:05:32,459 Stephen Koukoulas: conditions index that we'll see later this week will be 108 00:05:32,460 --> 00:05:37,799 Stephen Koukoulas: really important to see whether that generally slightly positive tone, 109 00:05:37,799 --> 00:05:40,650 Stephen Koukoulas: slightly upbeat tone, to the business sector's still there. If 110 00:05:40,650 --> 00:05:43,740 Stephen Koukoulas: there's any deterioration in that outlook from the business sector, 111 00:05:43,740 --> 00:05:47,820 Stephen Koukoulas: then again, it feeds into this whole debate, how strong 112 00:05:47,820 --> 00:05:50,370 Stephen Koukoulas: is the economy? What sort of landing is the economy 113 00:05:50,370 --> 00:05:52,320 Stephen Koukoulas: going to have in the second half of 2023, a 114 00:05:52,320 --> 00:05:54,750 Stephen Koukoulas: soft landing, which we all hope for, or a hard 115 00:05:54,750 --> 00:05:57,240 Stephen Koukoulas: landing, which of course is a bit uncomfortable? 116 00:05:57,809 --> 00:06:00,990 Sean Aylmer: And of course, Westpac consumer sentiment this week too. Consumers 117 00:06:00,990 --> 00:06:01,500 Sean Aylmer: aren't happy, 118 00:06:02,010 --> 00:06:05,669 Stephen Koukoulas: Consumers are glum. Yes, they are. It's hard to imagine 119 00:06:05,670 --> 00:06:08,070 Stephen Koukoulas: that being strong because the survey's been conducted after the 120 00:06:08,070 --> 00:06:11,580 Stephen Koukoulas: rate hike of last Tuesday. It's going probably be a 121 00:06:11,580 --> 00:06:14,159 Stephen Koukoulas: very weak number. And why that matters is that when 122 00:06:14,160 --> 00:06:18,089 Stephen Koukoulas: consumers are gloomy, when they're feeling pessimistic, they tend to 123 00:06:18,089 --> 00:06:21,839 Stephen Koukoulas: hunker down with their spending. So if we get a 124 00:06:21,839 --> 00:06:24,990 Stephen Koukoulas: poor level of consumer sentiment, you can be pretty sure 125 00:06:24,990 --> 00:06:28,319 Stephen Koukoulas: that that soggy retail sales performance that we've seen over 126 00:06:28,320 --> 00:06:30,750 Stephen Koukoulas: the last few months will continue into May and even June. 127 00:06:31,349 --> 00:06:32,460 Sean Aylmer: Stephen, have a great week. 128 00:06:32,910 --> 00:06:33,720 Stephen Koukoulas: Thank you, Sean. You too. 129 00:06:34,320 --> 00:06:36,750 Sean Aylmer: That was economist Stephen Koukoulas better known as the Kouk. 130 00:06:36,839 --> 00:06:38,940 Sean Aylmer: You can find him at thekouk. com and follow him 131 00:06:38,940 --> 00:06:41,610 Sean Aylmer: on Twitter using the handle TheKouk. I'm Sean Aylmer and 132 00:06:41,610 --> 00:06:43,260 Sean Aylmer: this is Fair and Greed: the week ahead.