Retail Sales Hide True Nature of Economy

The domestic economy is beginning to reveal a dichotomy as stimulus flows cloud the data set. Retail sales data out on Friday showed a record spike, with sales above their pre-covid-19 levels. However, data on exactly who in the economy is spending is revealing.

Since consumption makes up such a significant component of GDP, consumers getting out and buying things and doing so at a faster rate that is a good thing for the economy. The question is are people simply spending the stimulus checks they have received from the government and if so will that stop in September. The fact that people are spending stimulus checks isn’t of itself a bad thing, that is a much better outcome than if they used the funds as savings or to retire debt. The challenge is that if that is the main driver of spending then it is somewhat unsustainable and when the Jobkeeper and elevated Jobseeker payments cease, spending would similarly decline.

Whilst the Australian experience with Covid-19 has been challenging and we may have set-back, just this weekend Victoria saw a small outbreak and case numbers have risen. Looking at the virus in the global setting provides a dire picture. Cases in the US, Brazil, India, Mexico and parts of Asian and Africa are rising and the virus is spreading. For obvious reasons countries with more permeable land boarders and in a lower socio-economic category are struggling to contain the virus. Similarly, a flare up in Beijing has seen China move to reimpose restrictions in the immediate vicinity of the outbreak.

As the international borders remained closed and inbound travellers confined to hotels, the likelihood of the nation importing more of the virus remains very low. The challenge for the nation will be as these international supply lines of goods remain fractured and potentially break down further, the ability for consumers to spend and stimulate our economy could be impacted.

Matthew Dunshea