It is all too easy to fall into a trap of using a few snippets of positive economic news to declare “good times ahead”.
After all, the Australian economy is only just emerging from its deepest recession since the 1930s and there are still around 2.5 million Australians either unemployed or underemployed.
Wages growth is at record lows and the RBA just cut interest rates to 0.1 per cent.
But there has been a raft of relatively good news on the economy in recent weeks, which suggests that some form of economic recovery is unfolding as we go into the summer holiday season.
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Here’s the good news
The release of data on sentiment and confidence are part of the ‘recovery’ story. There is a firm correlation between measures of sentiment and the performance of the economy. When consumers and businesses are optimistic, it points to strong growth, while general gloom and pessimism is usually associated with weak economic conditions.
1. Westpac, NAB sentiment surveys have risen
The November estimate for the Westpac-Melbourne Institute Index of Consumer Sentiment rose to a 7 year high to be up 35.3 per cent since August.
According to Westpac, the index is a substantial 13 per cent higher than the average of the index in the six months prior to the March 2020 shutdowns. It is strong, and sentiment towards housing was particularly buoyant.
The NAB business survey for October was similarly positive with the measure of confidence at +5 points, the highest since the middle of 2019. Overall conditions remain below the long-run average, but the momentum higher for the business sector bodes well for stronger investment and hiring into 2021.
2. Spending has lifted...
The major banks are also publishing part of their internal data on credit card and direct debit activity and these figures show spending lifted strongly into the early part of November.
Part of this is linked to the opening up of Victoria and a return to spending there, but the other States are also registering solid gains.
3. And it’ll keep getting better
This bodes well for retail spending in the final months of 2020 which is likely to spill over to some further recovery in employment and hours worked.
The are other signs of good news.
4. House prices will rise
House prices remain upbeat with most cities registering price increases in recent months. Strong growth in housing finance aided by record low interest rates and an easing in lending rules are underpinning the upturn.
In 2020 to date, house prices have been rising in Hobart, Canberra, Adelaide, Brisbane and Sydney while prices in Perth and Darwin are broadly flat.
Melbourne house prices remain down from the start of the year but the opening up of the city has sparked a lift in sales activity which is widely expected to show up in a turn higher in house prices in the months ahead.
5. Iron ore prices are propping up trade
While commodity prices are fickle, the price of iron ore, at around US$125 a tonne, remains more than double the level assumed in the recent budget and is providing a huge boost to the international trade surplus and adding substantially to national income.
6. Stock markets are rallying
Rounding out the good news is the recent lift in share prices. The ASX has risen 40 per cent from the March lows, which were driven by the recession and coronavirus lock downs throughout Australia and much of the world.
Rising stocks prices are important for several reasons – they show investors are confident in the earnings and profits of the business sector and they boost the wealth of shareholders which underpins confidence and spending.
The bottom line
It is clearly too early to be thinking the economy is fixed and that 2021 will be a year of strong growth and a complete recovery.
But it is encouraging to see several key indictors all pointing to better economic news and that the worst of the recession is behind us.
The big challenge will be to sustain this good news and then translate it to jobs and a return to full employment.
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