FURTHER official interest rate rises could choke off consumer spending and grind the economy to a halt, economists warn.
Herston Economics chief economist Clifford Bennett says if the Reserve Bank raises the cash rate to five per cent by year’s end, the economy would “grind to a standstill”.
The current cash rate is 4.25 per cent, after the RBA lifted the rate by a quarter of a percentage point on Tuesday in an effort to further rein in expansionary pressures.
It was the fifth monthly interest rate rise by the central bank since October last year.
“If the cash rate gets to 5 per cent … the domestic economy will grind to a standstill,” Mr Bennett said.
“We’re seeing in the Sydney press examples of them having to choose between buying groceries and paying their electricity bill and the added burden from the RBA is completely unwarranted, unnecessary and unwanted.”
RBA governor Glenn Stevens said it was appropriate to raise the cash rate towards its long-run average given that “the risk of serious economic contraction
Most economists say the average long-run cash rate is around 5 per cent.
Nomura Australia economist Stephen Roberts said rising interest rates meant consumers were paying a greater proportion of their income in servicing debt.
Data compiled by the central bank showed that when the cash rate was 3.75 per cent at the and of the December quarter of 2009, the average household was paying more than 10 per cent of its income, minus taxes and some other regular payments, on interest payments.
When the cash rate topped 18 per cent in December 1989, the average household was spending just under nine per cent of its income on interest payments.
The figures also show that in December quarter of 1989, household debt was slightly less than half household yearly income.
Twenty years later it was equal to one and a half times an average household’s yearly income.
“That data is from fourth quarter (2009) and you have to remember we’ve had two more interest rate rises already,” Mr Roberts said.
He said a lower interest rate of 3.75 per cent to 4 per cent would be more appropriate given the current difference between the cash rate and the interest rates of major lenders.
Official economic data now points to a slowing economy, with building approvals, employment and retail sales data for March all coming in under market expectations.
Mr Bennett said the data suggested Australia’s economic performance post the global financial crisis was weaker than first thought.
“When you look at the domestic economy, there are patchy elements,” he said.
“There are storm clouds on the horizon.”
Source : www.news.com.au
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Retail hiring jumps on spending hopes
Posted in Jobs and careers, tagged ABS, according, anticipation, April, ARA, Australia, Australian, Australian Bureau of Statistics, Australian Retailers Association., bigger retailers, boosting, cash, casual employment, commentary, confidence, consumer, consumer emerges, consumer spending, David Jones, debt, delivery, demand, employed, employment, Executive Director, fear-filled, Federal, female, fiscal, forecasting, fuelled, Government’s, grow, high levels, hiring, improvement, increase, jumps, Mother’s Day, negative, numbers, package, paying, period, preparation, proportion, rate, rebound, reported, reporting, retail, Retailers, Richard Evans, rising, sales, sector, sharp, shoppers, shopping, skilled, skilled staff, spend, spending., staff, staffing levels, stimulus, stimulus package, surveys, tendency, trend, underutilisation, unemployed, Workers, workforce, working on July 8, 2009| Leave a Comment »
Retailers are boosting staff numbers in anticipation of an improvement in consumer spending, according to the Australian Retailers Association.
The industry group’s executive director, Richard Evans, said surveys of association members showed a 12 per cent jump in employment for small and medium-sized retailers this month, painting a much more positive picture than figures released by the Australian Bureau of Statistics earlier this month.
The number of people employed in the retail sector fell by less than 0.1 per cent last month compared with February, on a seasonally adjusted basis, but the ABS also reported an increase in underutilisation—the proportion of the workforce that is either unemployed or not working as many hours as it would like.
The rate of underutilisation among female workers was 9.1per cent last month, compared with 6.4 per cent for men, which the ABS attributed to the larger proportion of women working in industries with high levels of casual employment, such as retail.
However, Mr Evans said most retailers were holding on to skilled staff in preparation for rising demand, with 68 per cent reporting no change in employment levels in the past quarter.
“A further 16 per cent of retailers actually increased their number of staff during the same period,” he said.
“Retailing works in cycles, and although the sector has experienced a downturn, good retailers are doing their best to hold on to skilled staff as consumer confidence continues to grow and a new type of consumer emerges.”
The same trend was in play among the bigger retailers, with David Jones boosting staffing levels around the Mother’s Day shopping period after the delivery of the federal government’s fiscal stimulus package in April led to a sharp rebound in sales.
Mr Evans said the stimulus package and lower interest rates meant most consumers had more cash available to spend, but “negative and fear-filled commentary” had fuelled a tendency among consumers to cut discretionary spending in favour of saving or paying off debt.
This meant shoppers would be in a better position to spend when confidence picks up again—with the ARA forecasting an improvement as soon as the September quarter.
Source : www.careerone.com.au
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