The economy falters as jittery consumers tighten their belts

CreditorWatch expects rising unemployment to prompt further belt-tightening among consumers. (Joel Garrett/AAP Photos)

By Poppy Johnston In Canberra

The Australian economy is already slowing and there are more storm clouds on the horizon.

Rising interest rates, sky-high inflation and gloomy global conditions are weighing on the economy, and a new outlook data suggests the situation will only get worse.

The Westpac-Melbourne Institute leading index, which draws on a range of domestic and international data points to paint a picture of future economic growth, delivered its 10th consecutive negative result in May.

The six-month annual growth rate on the index, which signals the pace of economic activity relative to the trend three to nine months ahead, fell to a negative 1.09 percent in May from a negative 0.78 percent in April.

Bill Evans, chief economist at Westpac Group, said it was the lowest growth rate result since the pandemic and added weight to the bank’s recently downgraded forecasts for economic growth.

The bank’s economists now think growth will slow to 0.6 percent in 2023, down from one percent previously forecast.

In 2024, growth could rise to one per cent, but this forecast has been reduced from 1.5 per cent.

„This weakness in the economy is consumer-focused, but reflects a slowing global economy, a decline in residential construction and progressive weakness in the labor market,” Mr Evans said.

Australia’s economy is losing momentum, with quarterly growth retreating from 0.6 per cent in the three months to December to 0.2 per cent in the March quarter.

The March quarter national accounts also revealed a weakening of household spending, echoed in visa transaction data.

The company’s cost momentum index fell 0.9 points to 98.8 in May, an improvement from the previous month.

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All spending categories are now in shrinking territory — that is, less than 100 percent — except discretionary spending or essentials.

At 101.5 index points, non-discretionary spending remained in expansive territory, but it was down 0.7 points on the month.

Discretionary spending fell another 0.2 points to 97.5.

These patterns are likely to continue as rising interest rates and severe inflation drive people away from restaurants and other non-essential spending in favor of cheaper alternatives such as eating out.

As rising interest rates and high inflation force consumers to cut back, higher incomes will help support consumer spending.

An Australian Bureau of Statistics dataset shows wages and salaries paid by employers rose by 9.3 per cent, or $7.7 billion, in April last year, based on single-track wage data.

But earnings fell 1.7 percent from March, likely due to many sectors handing out bonuses in March, said Jorn Jarvis, head of ABS labor statistics.

Unlike the wage price index, which measures underlying movement in wages, the new earnings data set captures changes in the composition of the labor market.

These include changing jobs, overtime and bonuses and other additional payments.

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