The Reserve Bank board should allow itself some congratulatory tea and biscuits this morning: monetary policy is still working.
Champagne corks, of course, remain off the menu. But it’s not a boom the bank is looking to engineer, only a solid return to more normal levels of activity in construction, housing and retail.
How easily we forget, amid all the talk of mining booms and ‘making things’, that the Australian economy has for a long time been built on the consumer’s back.
Even at the height of the mining boom, household consumption spending accounted for more than half of the economy, dwarfing the dirty black and brown stuff.
If it’s economic growth you want, it’s consumer spending that must recover.
And – fingers crossed – that’s exactly what we’re seeing.
Those looking for a return to the heady, debt-fuelled consumption days before the GFC will always be disappointed.
But a return to growth in consumer spending is indeed underway.
Retail sales are up 3.1 per cent over the year to April. Sure, it’s not the 8 per cent plus growth we saw back in 2007. But such growth was unsustainable, fuelled by the halving of nominal interest rates. That was a boom which is permanently at an end.
And bricks and mortar retail stores have never captured all consumer spending. Retail spending does not capture all the money we spend on services, like haircuts, doctor’s appointments, dog walkers and nannies. Tomorrow’s GDP report will give us a more accurate picture on that. We already know that sales of new motor vehicles are growing by a slightly faster clip of 3.3 per cent a year.
Even so, retail sales growth of 3.1 per cent is now entirely in line with wages growth of 3.1 per cent on the latest March quarter wage price index.
Consumer confidence may have slumped in the wake of the May federal budget. But consumers have been twitchy for a while.
When it comes to Aussie consumers, it’s a case of ‘ignore what I say, see what I do.’
And despite our new debt-shy ways, there are signs of life in home borrowing too. According to the Reserve Bank’s own figures, housing credit appears to have bottomed out at 4.5 per cent growth over the year to April.
Sure, that’s nothing compared to the 20 per cent plus growth seen during the early to mid-2000s. But that’s not the point. We’re not looking for the next highly leveraged housing boom, only that borrowing should increase in line with wages and population growth.
And despite falls in April and May, house prices are up a respectable 2.9 per cent over the year, according to RP Data-Rismark, giving a median value of $491,000.
Some confidence also appears to be returning to new home approvals, up 27.3 per cent over the past year. Of course a small base means big percentage gains are possible. We are still building only half the number of homes needed to house population growth of 300,000 a year.
What we really need is a home construction boom, not a home price boom. So far so good.
A look at the broader economic dashboard also reveals an economy remarkable in its unremarkableness. Inflation at 2.5 per cent. Unemployment rate at 5.5 per cent. And tomorrow’s national accounts are predicted to show gross domestic product grew by 2.7 per cent over the year – a little below its long-term average of around 3 per cent.
Could this be the new normal we have been looking for? After so much excitement, we should be glad to return to such a boring world as retail spending and borrowing growing in line with incomes.
Meanwhile the six-cent fall in the Australian dollar has removed yet another remarkable feature of the economy.
Indeed, it’s steady as she goes. Today’s meeting of the Reserve Bank looks like being a central bankers’ dream: boring.