Productivity drain
Been knocking around Sydney for a few days, and the place is self-evidently pumping with international Uni students and especially backpackers again.
Given how busy the beaches and driving ranges are during working hours, and chatting to a few folks around the traps, there's clearly a fair bit of debate ongoing about the relationship - causal or otherwise - between the 'working from home' phenomenon and the disconcerting collapse in Australia's productivity.
Many large employers are pushing employees back towards showing their faces in the office as corporate profits are squeezed and household consumption slows.
It'll be interesting to see how far this push goes, and to what extent it spreads into the public sector and for government roles.
Australia's real inflation-adjusted wages have slumped all the way back to where they were more than a dozen years ago, possibly due to the combination of a high level of immigration, the seemingly endless pandemic lockdowns, and a sharp increase in compulsory superannuation contributions from 9 per cent to 12 per cent in 2025, and this is pressuring households significantly.
The other notable and related thing is that while Baby Boomers and tourists clearly have plenty of money to spend, almost every conversation I've been having around town seems to revolve around cutting back on retail spending, holidays, school fees, investments, and other outlays.
The squeeze is on, and it's showing up in weak per capita retail volumes data, and also now in mortgage delinquencies. National Australia Bank reported rising mortgage arrears this week, with further increases expected.
Source: NAB
In the meanwhile, the housing shortage continues to build, with lending assessment buffers remaining in place, and construction and financing costs too high to make new apartment projects viable.
Within the space of a day this week there were quarter point interest rate cuts this week from the US Federal Reserve and the Bank of England, as well as a 0.50 percentage points from the Sveriges Riksbank in Sweden.
The US election continued to take up a disproportionate amount of media airtime in Australia and Europe, reaching a crescendo on Wednesday afternoon Aussie time as networks reported a red wave, and a clean sweep to boot.
Market pricing is still leaning towards another cut from the Federal Reserve in December, though this may or may not transpire depending upon how the US economy and financial markets react to Trump's election victory and mandate, which always looked an obvious outcome to my mildly interested musings.
Australia has seen its 3-year government bond yield rebound from 3½ per cent to 4 per cent over the past month or so, even as the inflation rate in Australia has fallen as it has everywhere else (albeit with a lag).
On the other hand, interest rates have not fallen in lockstep in Australia to date, as brilliantly charted by Justin Fabo of Antipodean Macro.
The US ballot showed how incumbent governments are being punished for the painful rise in the cost of living (whether it's their fault or otherwise), and betting markets for the April/May 2025 Federal election in Australia have suddenly shifted to $1.80 in favour of the Coalition forming the next government, versus a slide to $2.10 for the Australian Labor Party.
The reaction to Labor's proposed social media ban for those aged 16 and under has been about as tepid as for the so-termed 'war on air in chip packets', and with a number of senior party members apparently hedging their bets by buying coastal retirement homes, there must surely be an almighty push on to get the cost of living and interest rates down before the looming election date...or else the ALP could be toast.
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