Daily Commentary BY THE CURVE TEAM –

Confidence Resurgence Continues

9th of December, 2020

The recovery in consumer confidence has been unprecedented since the Covid induced lows.

Confidence stands at 112, a 4.1% gain for December. This is a ten-year high and 48% above the Covid lows. The latest month accounts for the positive vaccine news not captured in the prior month’s data.

Family finances vs a year ago was up 6.9% and economic conditions for the next 12 months were up 9.9%. Health care workers and those aged 55-64, both groups who are more susceptible to Covid, saw gains in confidence of over 20%, likely reflecting the positive vaccine news.

The speed of the recovery in confidence is remarkable compared to previous downturns. Positive vaccine news, containment of the virus, and accommodating fiscal and monetary policy have spurred the pace of the recovery.

Especially encouraging is the unemployment expectations index, which fell 16.2% indicating individuals are much more positive about their employment prospects. This stands in contrast to businesses’ employment expectations, which remains stubbornly low and negative.

Employment expectations and outcomes will be critical to watch over the next year. If they remain low, then inflation will unlikely hit the RBA’s target band of 2-3% as wage growth won’t put upward pressure on prices.

Although on the surface higher unemployment will hurt the economy, if it is because businesses are automated processes and becoming more productive then this poses a strong upside to the economy. Already there is evidence of this.

A survey by the World Economic Forum of global businesses suggested 80% of those surveyed planned on increasing automation of processes and remote work, while 43% expect to reduce their workforce. In the short run this will pose challenges, but over the long run presents an opportunity to increase standards of living materially.

Josh Stewart

Associate - Money Markets