Unemployment in August held steady at 3.7%, with an extra 65,000 people finding themselves in work. But earlier this week, property developer Tim Gurner suggested unemployment needs to rise “to remind people that they work for the employer, not the other way around.”
CBA Chief Economist Stephen Halmarick talks to Jennifer Duke about the bank’s latest spending data, the unemployment figures, the desired outcome for the economy, and why “we don’t need to see pain to achieve those outcomes.”
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Jennifer Duke: Welcome to the Fear and Greed Daily Interview. I’m Jennifer Duke.
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Jennifer Duke: The unemployment rate remained steady at 3.7% yesterday, but there
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Jennifer Duke: was an unexpected spike of almost 65,000 people who found
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Jennifer Duke: work during August. So I wanted to take a closer
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Jennifer Duke: look at this data today and what it means for
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Jennifer Duke: businesses looking for staff. And at the same time, earlier
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Jennifer Duke: this week, we talked about the latest CommBank Household Spending
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Jennifer Duke: Insights Index, which rose 0.7% in August. This index can
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Jennifer Duke: actually figure out whether events like the FIFA World Cup
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Jennifer Duke: and big movies like Barbie are a driver of household spending,
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Jennifer Duke: it’s pretty remarkable. To talk to us more about this
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Jennifer Duke: data is the Commonwealth Bank’s Chief Economist, Stephen Halmarick. Stephen,
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Jennifer Duke: welcome back to Fear and Greed.
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Stephen Halmarick : Thank you very much. Very good to be with you again.
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Jennifer Duke: So first of all, let’s start with that jobs data.
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Jennifer Duke: Did the results surprise you at all?
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Stephen Halmarick : Well, we were forecasting an increase of 40,000 on the month,
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Stephen Halmarick : so we thought it’d be a strong number. I think
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Stephen Halmarick : the consensus was 25,000, so it certainly was better than that,
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Stephen Halmarick : but even a bit better than our forecast. So yeah,
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Stephen Halmarick : nearly 65,000 jobs, as you say, a good result.
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Jennifer Duke: It’s a super strong number, and there was a lift
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Jennifer Duke: in the participation rate as well. But a lot of
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Jennifer Duke: those who found jobs were part- timers, do you think
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Jennifer Duke: that’s an early sign of weakness at all?
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Stephen Halmarick : Well, when we look at some of the data around
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Stephen Halmarick : the labour market, you can see some softening around the edges,
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Stephen Halmarick : I’d put it, the number of job ads being posted
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Stephen Halmarick : is coming down. It’s still quite high, but it’s well
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Stephen Halmarick : off its highs, and the number of people applying for
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Stephen Halmarick : those jobs is on the way back up. And of course,
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Stephen Halmarick : we know that the population growth rate through net migration
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Stephen Halmarick : is really rocketing higher. So there are some signs around
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Stephen Halmarick : the edges of some softening in the labour market. But yeah,
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Stephen Halmarick : the August number was quite strong.
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Jennifer Duke: And how did that align with what the Reserve Bank
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Jennifer Duke: was probably expecting? And what do you think it means
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Jennifer Duke: for interest rates?
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Stephen Halmarick : Well, I think that’s another data set the Reserve Bank’s
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Stephen Halmarick : looking at. We think the interest rates are going to
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Stephen Halmarick : remain on hold at 4.1% well into next year. As
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Stephen Halmarick : you know, the new governor takes over next week. So
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Stephen Halmarick : I think when Michelle Bullock looks at all the data
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Stephen Halmarick : available at the October board meeting, we’ll see interest rates
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Stephen Halmarick : on hold again next month.
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Jennifer Duke: And what does it mean for businesses who are looking
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Jennifer Duke: for workers? Because there is a big skill shortage at the moment.
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Jennifer Duke: Do we think that we’re going to see this tight labour market
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Jennifer Duke: continue on for a while?
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Stephen Halmarick : Well, certainly it is tight as we talked about, but
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Stephen Halmarick : there is some signs of softening around the edges. And
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Stephen Halmarick : I think for the businesses, the issue there is going
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Stephen Halmarick : to be the big increase in net migration. Is that
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Stephen Halmarick : going to help with finding available staff, skilled staff in
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Stephen Halmarick : areas like health and construction? Which we’ll need to build
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Stephen Halmarick : all these dwellings that the government is hoping to get done.
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Stephen Halmarick : So I think that it’s the increase in net migration
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Stephen Halmarick : that’s going to lead to some more availability of labour
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Stephen Halmarick : in the months ahead.
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Jennifer Duke: Definitely. How do you think that’s going to show up
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Jennifer Duke: in the labour force data as we see it?
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Stephen Halmarick : So the issue there is to keep the unemployment rate steady,
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Stephen Halmarick : it’s going to require more and more jobs to be
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Stephen Halmarick : created every month. At least 35,000 jobs per month will
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Stephen Halmarick : need to be created to keep the unemployment rate steady, given
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Stephen Halmarick : the size of the labour forces rising. So we actually
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Stephen Halmarick : are forecasting the unemployment rate to move up to 4.2% by the
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Stephen Halmarick : end of this year and be around 4.5% the middle
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Stephen Halmarick : of next year. That’s very much in line with the
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Stephen Halmarick : Reserve Bank’s own forecasts as well.
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Jennifer Duke: Stay with me, Stephen, we’ll be back in a minute.
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Jennifer Duke: I am speaking to Commonwealth Bank, Chief Economist, Stephen Halmarick.
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Jennifer Duke: Earlier this week, property developer Tim Gerner made some comments
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Jennifer Duke: about unemployment and he’s saying that we need to see
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Jennifer Duke: a significant rise in joblessness to change workplace attitudes and
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Jennifer Duke: for people to feel lucky, I guess, to be employed
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Jennifer Duke: again. Do you agree with him and do we need
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Jennifer Duke: to see pain in the economy at the moment?
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Stephen Halmarick : No, I would not agree with that assessment. I think
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Stephen Halmarick : if we can get the soft landing the Reserve Bank
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Stephen Halmarick : is looking for, inflation is already decelerating, but it needs
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Stephen Halmarick : to decelerate more. It peaked at 7.8% in the December quarter
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Stephen Halmarick : last year’s now 6% in the June quarter, so inflation
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Stephen Halmarick : is decelerating. And as Phil Lowe, the outgoing Reserve Bank
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Stephen Halmarick : governor said in his final speech, if we can get
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Stephen Halmarick : inflation back to target range by we think around the
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Stephen Halmarick : middle of next year without the unemployment rate increasing too
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Stephen Halmarick : much, that would be a very good outcome. So I don’t
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Stephen Halmarick : agree with the characterisation that we need to see “pain”
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Stephen Halmarick : to achieve those outcomes.
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Jennifer Duke: I think lots of workers will be very pleased to
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Jennifer Duke: hear that. So looking at the Housing Spending Insights Index
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Jennifer Duke: right now, because this has just come out from CommBank,
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Jennifer Duke: so for anyone who missed our chat last time, why
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Jennifer Duke: is household spending so important in the economy?
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Stephen Halmarick : Well, household spending is about 50% of the economy, so
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Stephen Halmarick : it’s really a key driver and the data that we
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Stephen Halmarick : have available to us, the household spending insights covers around
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Stephen Halmarick : 30% of all consumer spending in the economy and is
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Stephen Halmarick : data from around 7 million households. So it’s a very large data
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Stephen Halmarick : set that we can produce very quickly. I recently just
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Stephen Halmarick : published the August numbers. And we think it gives us
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Stephen Halmarick : great insights into what’s happening in the economy more broadly,
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Stephen Halmarick : especially consumer spending.
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Jennifer Duke: So what were people spending on in August?
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Stephen Halmarick : Well, so the total index, the Household Spending Insights Index
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Stephen Halmarick : was up 0.7% in the month of August, that’s 2.3% in
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Stephen Halmarick : the year to August. So on the month, the biggest
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Stephen Halmarick : increase in spending up 2.8%, was education.
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Jennifer Duke: Gosh.
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Stephen Halmarick : And we can see that was really foreign students spending
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Stephen Halmarick : money at Australian universities, so quite a significant increase in
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Stephen Halmarick : that. So semester two starting and foreign students arriving and
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Stephen Halmarick : beginning to spend money. The second- largest increase was transport, that
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Stephen Halmarick : was up 2.1% in the month. And that’s driven by the
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Stephen Halmarick : higher price of petrol. So the biggest increase was at
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Stephen Halmarick : service stations. And we know the price of petrol was
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Stephen Halmarick : up 9% in the month of August and looks like
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Stephen Halmarick : it’s going to be up more in September. So that
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Stephen Halmarick : increase in transport spending, I’m not too sure you classify
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Stephen Halmarick : that as a good increase, it’s just the price of
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Stephen Halmarick : petrol’s higher and we’re having to pay the higher price.
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Stephen Halmarick : But as you alluded to in the introduction, the third- highest
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Stephen Halmarick : increase in August was recreation, we’re spending up 1. 9%
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Stephen Halmarick : on the month. And that was driven by the category
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Stephen Halmarick : ticketing agencies, which we can only assume is the FIFA
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Stephen Halmarick : Women’s World Cup. So lots of people piling onto the
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Stephen Halmarick : bandwagon, and it was such a great event and getting
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Stephen Halmarick : their tickets perhaps late in the day, but attending games,
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Stephen Halmarick : so that was excellent to see.
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Jennifer Duke: I think that’s probably a very safe assumption. Do you
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Jennifer Duke: see any areas where people are pulling back on their
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Jennifer Duke: spending over the month?
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Stephen Halmarick : So on the month there was actually a decline in utilities,
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Stephen Halmarick : which people might find hard to believe. But that’s really
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Stephen Halmarick : the government subsidies at work in terms of the energy bills.
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Stephen Halmarick : And also there’s a reduction in spending on water, which
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Stephen Halmarick : probably just reflects the weather. But given the forecast of
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Stephen Halmarick : a very hot summer, that’s probably going to change in
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Stephen Halmarick : the near term. It’s interesting, if we look at the
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Stephen Halmarick : year to August where spending was up 2.3%. We can
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Stephen Halmarick : see the biggest declines in spending in the year to
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Stephen Halmarick : August were household goods down 3.6% and household services down 8.4%.
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Stephen Halmarick : So a clear reduction in spending on those everyday goods.
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Stephen Halmarick : Household goods is clothing and footwear and white goods and
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Stephen Halmarick : TVs and furniture and things like that.
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Jennifer Duke: All the fun stuff.
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Stephen Halmarick : Yeah, yeah. Household services includes childcare, which we know is up,
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Stephen Halmarick : but other services like cleaning and gardening and trades, so electrical, plumbing, carpentry.
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Stephen Halmarick : So it definitely looks like people are having to shift
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Stephen Halmarick : their spending behaviour, spending less on household goods and services
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Stephen Halmarick : and spending more money on things like insurance. Insurance was
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Stephen Halmarick : up 13.5% year to August.
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Jennifer Duke: Gosh.
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Stephen Halmarick : Education up 14.7%. So shifting away from those big services
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Stephen Halmarick : where prices are rising and less and less on household
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Stephen Halmarick : goods and household services.
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Jennifer Duke: And do you think that trend’s going to continue on for
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Jennifer Duke: the rest of the year?
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Stephen Halmarick : Yeah, I think so. We’ve still got the lagged effect
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Stephen Halmarick : of previous rate hikes that really flow through to variable
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Stephen Halmarick : mortgages, but also particularly the fixed rate mortgages. So it
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Stephen Halmarick : won’t be until early 2024 before the full effect of
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Stephen Halmarick : all the rate hikes are in household budgets, even though
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Stephen Halmarick : we think the last rate hike was back in June.
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Stephen Halmarick : So we do think consumer spending is going to continue to
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Stephen Halmarick : slow into 2024, because we know that income growth, nominal
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Stephen Halmarick : income growth is not keeping up with higher inflation interest
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Stephen Halmarick : costs and taxes. So real household disposable income is going
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Stephen Halmarick : backwards. And with both mortgage costs and rent rising, that
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Stephen Halmarick : just means less money to spend on everything else.
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Jennifer Duke: Definitely. And business confidence has been up quite a bit
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Jennifer Duke: lately, I guess, more than most people might expect. Clearly
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Jennifer Duke: your data is showing us what’s actually happening on the
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Jennifer Duke: ground. How do these two data points marry together? And
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Jennifer Duke: are you expecting business confidence to start slipping?
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Stephen Halmarick : Yeah, business investment has been quite strong. Even the national accounts
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Stephen Halmarick : show a pick- up in business investment, and the surveys
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Stephen Halmarick : do point towards a continued improvement in business investment, as
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Stephen Halmarick : well as government spending, particularly on infrastructure. So we think
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Stephen Halmarick : that’s going to be a source of growth for the
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Stephen Halmarick : economy, private sector and public sector investment, even as consumer
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Stephen Halmarick : spending slows. So that’s pleasing to see, and we think that’ll be
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Stephen Halmarick : an offset to that weakness in consumer spending.
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Jennifer Duke: Definitely. Stephen, thank you so much for talking to Fear
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Jennifer Duke: and Greed.
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Stephen Halmarick : My pleasure. Thank you.
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Jennifer Duke: And that was Stephen Halmarick, the Commonwealth Bank Chief Economist.
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Jennifer Duke: This is the Fear and Greed Daily Interview. Join us
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Jennifer Duke: every morning for the full episode of Fear and Greed,
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Jennifer Duke: Australia’s most popular business podcast. I’m Jennifer Duke, Economics Correspondent
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Jennifer Duke: at Capital Brief, and filling in for Sean Aylmer. Have
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Jennifer Duke: a great day.