Businesses and consumers caught between opposing forces
Will a second rate cut be enough to settle the nerves of businesses and consumers spooked by global trade uncertainty?
Donald Trump's tariffs have weighed on sentiment in recent months, stifling an expected economic recovery in 2025.
Household confidence spiked following the Reserve Bank's first interest rate reduction in February but the prospect of a global economic slowdown brought about by the US president's trade war wiped away those gains.
Westpac and the Melbourne Institute will release the June update to their consumer sentiment index on Tuesday.
Despite a de-escalation in trade tensions between the US and China, uncertainty remains high.
In the central bank board's May minutes, the word uncertainty was used 21 times - almost double the figure in April.
But another rate cut by the RBA last month could at least provide a much-needed boost to consumer spirits, after spending was slower than expected in the first few months of the year.
Following the May board meeting, Reserve Bank governor Michele Bullock said there was a downside risk to the economy if households remained more cautious than they had been during past rate easing cycles.
Subdued consumption was having a flow-on effect for businesses, which are battling with relatively low spending while unit labour costs remain high.
Household spending rose just 0.1 per cent in April, cancelling out a 0.1 per cent fall the previous month, the Australian Bureau of Statistics reported on Thursday.
NAB's business survey, also to be released on Tuesday, will be closely watched for signs of how the last month of tariff turbulence and interest rate reductions have impacted firms' investment plans.
"Capex and forward orders indicators will be key to deducing how business decisions and demand have been impacted by global growth uncertainty," ANZ Bank senior economist Adelaide Timbrell said in a research note.
Capital expenditure fell 0.1 per cent in the March quarter, with spending on equipment and machinery dipping a worrying 1.3 per cent.
Australia desperately needs businesses to invest more in the sort of capital that can help boost anaemic productivity growth.
In NAB's last business survey, capex fell sharply by six index points while forward orders were also weak.
With little in the way of hard economic data on offer domestically, investors will cast their eyes offshore to US inflation data on Wednesday and Thursday.
"Tariffs have yet to meaningfully impact published CPI data to date," said ANZ economists Tom Kenny and Shwetha Sunilkumar.
"We think May's CPI data will show some of the increased cost pressures facing businesses being passed onto consumers, particularly via higher goods prices."
The US central bank has remained cautious, keeping rates on hold at 4.25 per cent since December and has so far resisted Mr Trump's demands to drop them.
If inflation remains subdued, the Fed could eventually be reassured enough to resume its easing cycle.
Wall Street closed higher on Friday after a better-than-expected jobs report calmed worries about the economy, while Tesla bounced, clawing back some previous session losses.
The S&P 500 closed above 6000 for the first time since February 21, fuelled by gains in technology shares.
Australian share futures moved up 29 points, or 0.34 per cent, to 6226.
The S&P/ASX200 traded a tight range on Friday to finish 23.2 points lower, down 0.27 per cent to 8,515.7, as the broader All Ordinaries slipped 26.7 points, or 0.3 per cent, to 8,741.9.
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The Age
6 hours ago
- The Age
If bulldusting about productivity was productive, we'd all be billionaires
The least understanding of neoclassical economics shows this thinking is the wrong way round. It's when the cost of labour gets too high that businesses have greater incentive to invest in labour-saving equipment. At present, we're told, business investment spending as a proportion of national income is the lowest it's been in at least 40 years. If so, it's a sign that labour costs are too low, not too high. The other reason firms are motivated to invest in expanding their production capacity is if business is booming. But this is where business risks shooting itself in the foot. Whereas keeping the lid on wages may seem profit-increasing for the individual firm, when all of them do it at the same time, it's profit-reducing. Why? Because the economy is circular. Because wages are by far the greatest source of household income. So the more successful employers are in holding down their wage costs, the less their customers have to spend on whatever businesses are selling. If economic growth is weak – as it is – the first place to look for a reason is the strength of wages growth. The Fair Work Commission has cut the real wages of people on award wages by about 4.5 per cent – something the lobby groups somehow forgot to mention. Fortunately, however, while sensible economists leave the running to the false prophets of the business lobby, my second favourite website, The Conversation, has given a voice to Professor John Buchanan, of the University of Sydney, an expert on the topic who isn't afraid to speak truth to business bulldust. 'In Australia, it has long been accepted that – all things being equal – wages should move with both prices and productivity,' he says. 'Adjusting them for inflation ensures their real value is maintained. Adjusting them for productivity [improvement] means employees share in rising prosperity associated with society becoming more productive over time.' In recent times, however, all things ain't been equal. Depending on how it's measured, the rate of inflation peaked at 7.8 per cent (using the CPI, which excludes mortgage interest rates) or 9.6 per cent (using the living cost index for employed households, which does include them). So the Fair Work Commission has cut the real wages of people on award wages by about 4.5 per cent – something the lobby groups somehow forgot to mention. That's what honest dealers these guys are. If there's a way to fiddle the figures, they'll find it. The supposed real increase of 1.1 per cent in award wages is actually just a reduction in their real fall to about 3.4 per cent. So much for the impossible impost that will send many small businesses to the wall. The commission has always been into swings and roundabouts. Cut real wages now to get inflation down, then, when things are back to normal, start getting real wages back to where they should be. So we can expect more so-called real increases – each of them no doubt dealing death and destruction to the economy. Speaking of fiddling the figures, the commission points out a little-recognised inaccuracy in the conventional way of measuring real wages. It says that, if you take into account that prices rise continuously but wages rise only once a year, award wage workers' overall loss of earnings since July 2021 has been 14.4 per cent. What the lobbyist witch doctors have been doing is concealing the truth that the best explanation for our weak productivity performance is that employers have been seeking to increase their profits by holding down wage costs, rather than by investing in labour-saving technology.
Sydney Morning Herald
6 hours ago
- Sydney Morning Herald
If bulldusting about productivity was productive, we'd all be billionaires
The least understanding of neoclassical economics shows this thinking is the wrong way round. It's when the cost of labour gets too high that businesses have greater incentive to invest in labour-saving equipment. At present, we're told, business investment spending as a proportion of national income is the lowest it's been in at least 40 years. If so, it's a sign that labour costs are too low, not too high. The other reason firms are motivated to invest in expanding their production capacity is if business is booming. But this is where business risks shooting itself in the foot. Whereas keeping the lid on wages may seem profit-increasing for the individual firm, when all of them do it at the same time, it's profit-reducing. Why? Because the economy is circular. Because wages are by far the greatest source of household income. So the more successful employers are in holding down their wage costs, the less their customers have to spend on whatever businesses are selling. If economic growth is weak – as it is – the first place to look for a reason is the strength of wages growth. The Fair Work Commission has cut the real wages of people on award wages by about 4.5 per cent – something the lobby groups somehow forgot to mention. Fortunately, however, while sensible economists leave the running to the false prophets of the business lobby, my second favourite website, The Conversation, has given a voice to Professor John Buchanan, of the University of Sydney, an expert on the topic who isn't afraid to speak truth to business bulldust. 'In Australia, it has long been accepted that – all things being equal – wages should move with both prices and productivity,' he says. 'Adjusting them for inflation ensures their real value is maintained. Adjusting them for productivity [improvement] means employees share in rising prosperity associated with society becoming more productive over time.' In recent times, however, all things ain't been equal. Depending on how it's measured, the rate of inflation peaked at 7.8 per cent (using the CPI, which excludes mortgage interest rates) or 9.6 per cent (using the living cost index for employed households, which does include them). So the Fair Work Commission has cut the real wages of people on award wages by about 4.5 per cent – something the lobby groups somehow forgot to mention. That's what honest dealers these guys are. If there's a way to fiddle the figures, they'll find it. The supposed real increase of 1.1 per cent in award wages is actually just a reduction in their real fall to about 3.4 per cent. So much for the impossible impost that will send many small businesses to the wall. The commission has always been into swings and roundabouts. Cut real wages now to get inflation down, then, when things are back to normal, start getting real wages back to where they should be. So we can expect more so-called real increases – each of them no doubt dealing death and destruction to the economy. Speaking of fiddling the figures, the commission points out a little-recognised inaccuracy in the conventional way of measuring real wages. It says that, if you take into account that prices rise continuously but wages rise only once a year, award wage workers' overall loss of earnings since July 2021 has been 14.4 per cent. What the lobbyist witch doctors have been doing is concealing the truth that the best explanation for our weak productivity performance is that employers have been seeking to increase their profits by holding down wage costs, rather than by investing in labour-saving technology.
The Advertiser
6 hours ago
- The Advertiser
Rwanda quits Central African bloc in dispute with Congo
Rwanda says it will withdraw from the Economic Community of Central African States, underscoring diplomatic tensions in the region over an offensive by Rwanda-backed M23 rebels in eastern Congo. Kigali had expected to assume the chairmanship of the 11-member bloc at a meeting on Saturday in Equatorial Guinea. Instead, the bloc kept Equatorial Guinea in the role, which Rwanda's foreign ministry denounced as a violation of its rights. Rwanda, in a statement, condemned Congo's "instrumentalisation" of the bloc and saw "no justification for remaining in an organisation whose current functioning runs counter to its founding principles". It wasn't clear if Rwanda's exit from the bloc would take immediate effect. The office of Congolese President Felix Tshisekedi said in a statement that bloc members had "acknowledged the aggression against the Democratic Republic of Congo by Rwanda and ordered the aggressor country to withdraw its troops from Congolese soil". M23 seized eastern Congo's two largest cities earlier this year, with the advance leaving thousands dead and raising concerns of an all-out regional war. African leaders, along with Washington and Doha, have been trying to broker a peace deal. Congo, the United Nations and Western powers accuse Rwanda of supporting M23 by sending troops and weapons. Rwanda has long denied helping M23, saying its forces were acting in self-defence against Congo's army and ethnic Hutu militiamen linked to the 1994 Rwandan genocide that killed about one million people, mostly ethnic Tutsis. US President Donald Trump's administration hopes to strike a peace accord between Congo and Rwanda that would also facilitate billions in Western investment in the region, rich in minerals including tantalum, gold, cobalt, copper and lithium. The bloc was established in the 1980s to foster co-operation in areas such as security and economic affairs among its member states. Rwanda says it will withdraw from the Economic Community of Central African States, underscoring diplomatic tensions in the region over an offensive by Rwanda-backed M23 rebels in eastern Congo. Kigali had expected to assume the chairmanship of the 11-member bloc at a meeting on Saturday in Equatorial Guinea. Instead, the bloc kept Equatorial Guinea in the role, which Rwanda's foreign ministry denounced as a violation of its rights. Rwanda, in a statement, condemned Congo's "instrumentalisation" of the bloc and saw "no justification for remaining in an organisation whose current functioning runs counter to its founding principles". It wasn't clear if Rwanda's exit from the bloc would take immediate effect. The office of Congolese President Felix Tshisekedi said in a statement that bloc members had "acknowledged the aggression against the Democratic Republic of Congo by Rwanda and ordered the aggressor country to withdraw its troops from Congolese soil". M23 seized eastern Congo's two largest cities earlier this year, with the advance leaving thousands dead and raising concerns of an all-out regional war. African leaders, along with Washington and Doha, have been trying to broker a peace deal. Congo, the United Nations and Western powers accuse Rwanda of supporting M23 by sending troops and weapons. Rwanda has long denied helping M23, saying its forces were acting in self-defence against Congo's army and ethnic Hutu militiamen linked to the 1994 Rwandan genocide that killed about one million people, mostly ethnic Tutsis. US President Donald Trump's administration hopes to strike a peace accord between Congo and Rwanda that would also facilitate billions in Western investment in the region, rich in minerals including tantalum, gold, cobalt, copper and lithium. The bloc was established in the 1980s to foster co-operation in areas such as security and economic affairs among its member states. Rwanda says it will withdraw from the Economic Community of Central African States, underscoring diplomatic tensions in the region over an offensive by Rwanda-backed M23 rebels in eastern Congo. Kigali had expected to assume the chairmanship of the 11-member bloc at a meeting on Saturday in Equatorial Guinea. Instead, the bloc kept Equatorial Guinea in the role, which Rwanda's foreign ministry denounced as a violation of its rights. Rwanda, in a statement, condemned Congo's "instrumentalisation" of the bloc and saw "no justification for remaining in an organisation whose current functioning runs counter to its founding principles". It wasn't clear if Rwanda's exit from the bloc would take immediate effect. The office of Congolese President Felix Tshisekedi said in a statement that bloc members had "acknowledged the aggression against the Democratic Republic of Congo by Rwanda and ordered the aggressor country to withdraw its troops from Congolese soil". M23 seized eastern Congo's two largest cities earlier this year, with the advance leaving thousands dead and raising concerns of an all-out regional war. African leaders, along with Washington and Doha, have been trying to broker a peace deal. Congo, the United Nations and Western powers accuse Rwanda of supporting M23 by sending troops and weapons. Rwanda has long denied helping M23, saying its forces were acting in self-defence against Congo's army and ethnic Hutu militiamen linked to the 1994 Rwandan genocide that killed about one million people, mostly ethnic Tutsis. US President Donald Trump's administration hopes to strike a peace accord between Congo and Rwanda that would also facilitate billions in Western investment in the region, rich in minerals including tantalum, gold, cobalt, copper and lithium. The bloc was established in the 1980s to foster co-operation in areas such as security and economic affairs among its member states. Rwanda says it will withdraw from the Economic Community of Central African States, underscoring diplomatic tensions in the region over an offensive by Rwanda-backed M23 rebels in eastern Congo. Kigali had expected to assume the chairmanship of the 11-member bloc at a meeting on Saturday in Equatorial Guinea. Instead, the bloc kept Equatorial Guinea in the role, which Rwanda's foreign ministry denounced as a violation of its rights. Rwanda, in a statement, condemned Congo's "instrumentalisation" of the bloc and saw "no justification for remaining in an organisation whose current functioning runs counter to its founding principles". It wasn't clear if Rwanda's exit from the bloc would take immediate effect. The office of Congolese President Felix Tshisekedi said in a statement that bloc members had "acknowledged the aggression against the Democratic Republic of Congo by Rwanda and ordered the aggressor country to withdraw its troops from Congolese soil". M23 seized eastern Congo's two largest cities earlier this year, with the advance leaving thousands dead and raising concerns of an all-out regional war. African leaders, along with Washington and Doha, have been trying to broker a peace deal. Congo, the United Nations and Western powers accuse Rwanda of supporting M23 by sending troops and weapons. Rwanda has long denied helping M23, saying its forces were acting in self-defence against Congo's army and ethnic Hutu militiamen linked to the 1994 Rwandan genocide that killed about one million people, mostly ethnic Tutsis. US President Donald Trump's administration hopes to strike a peace accord between Congo and Rwanda that would also facilitate billions in Western investment in the region, rich in minerals including tantalum, gold, cobalt, copper and lithium. The bloc was established in the 1980s to foster co-operation in areas such as security and economic affairs among its member states.
