Alarming news! I think the economy is a bit stuffed.
You may think so, too. But you are not convinced because house prices are at an all-time high. There is meant to be a cost-of-living crisis too, but if you went to the shopping mall, you would think we had all won a million bucks on the lottery and decided we should be involved simultaneously in a massive orgy of spending.
But I always say figures never lie, and the June quarter figures relating to the economy were interesting reading. Well, if you’re an accountant, they are. That’s because accountants get aroused over figures. It’s about as interesting as it gets for us accountants.
Anyway, the June quarter figures show that the household sector remains in recession. It showed retail spending volumes fell in the quarter and fell in per capita terms too. And this you fail to understand because every week you visit a mall, the place is a hive full of people. What is going on?
But before we get to that, there is more.
There is a fall in growth relating to new homes and this will affect growth now and, in the future, but there are signs that business investment might be picking up which is a bit of good news.
But growth is still pathetic—less than 1%, which means Australia will have the slowest rate of growth since the 1990s if we exclude the pandemic. But the news gets even worse than that.
That is because the population is growing at its fastest pace since the 1950s which should mean the economy should be growing faster than a runaway train. But it is not, and that is a real worry.
Another problem? We have sticky inflation. Sticky inflation is when the economy does not grow, but inflation remains high. And if inflation remains high, then interest rates remain high to try and control those pesky price rises.
Why would that be? Well, wage rate increases have been creeping in, and do not forget the tax cuts and electricity giveaways. These all increase the inflation rate.
But let’s get back to full shopping centres. This is due to the Albanese government’s record immigration program, which is growing the overall economic pie. But the problem is that this pie is not growing fast enough, considering the number of mouths to feed. In fact, if you take into consideration immigration, Australia is actually in recession.
And those house prices? Well, all those that have migrated to Australia need a bed to sleep on and a roof over their heads. And many of them are coming from China and the Indian subcontinent and many of them have a lot of spare dollars they can put up as house deposits. They are in effect pricing the local population out of the housing market and that in turn keeps inflation up which keeps interest rates up.
So, what does it mean for you and me? I am not really sure, to be honest. Australia has never been in this position. But I fear about immigration. There was a time when the only people allowed to enter and stay in Australia were those who had skills, and those skills were required. I am not sure that is true anymore, and I am speaking as an immigrant.
And the more people we have, the more resources we need. More road construction, bigger hospitals and schools. But if the economic pie is not growing as fast as the population, it means we are going backward.
There’s more. Over the last ten years, Australia has grown due to population growth, but our overall productivity has fallen. Why is that? Well, I can think of a few reasons.
1. Working from home
Working from home works for workers but not necessarily for the economy or businesses.
As a business owner who has a mix of workers working remotely and from an office, I have a unique perspective. This is what we have found.
Training takes longer. This means our young take longer to pick up skills and they lose the social interaction. If training takes longer then productivity is bound to fall. If social interaction falls, then customer service and relationships also take a hit. Yes, Zoom is great, but nothing beats a face-to-face meeting.
2. Wage rates are too high
Most workers will say they are not. But they are. Australia now has some of the highest wage rates in the world. Yet as a country we do not produce as much as wages command which means we are slowly becoming uncompetitive.
And if wage rates are high, it means workers do not need to work overtime, are happy to take unpaid leave, or work less hours. One of the biggest complaints I get from my clients is that their workforce is not prepared to work extra hours. And this affects productivity.
What does this all mean for us? Well, in the short term, not much. But anyone who has followed the UK over the last 15 years will know that the long-term indicators are not good. We are where the UK was 15 years ago, and within 15 years, the UK has become a mess, and once a mess, it becomes very difficult to climb out. I hope we do not go that way, but the indicators are that it may only be a matter of time.
And that is why if you are running a business, you need to prepare to make your business a lean, mean fighting machine for the potentially difficult times ahead. Because the omens are not good if you don’t.
What should you be looking at? I would start with a business plan, a cashflow plan and a review of the business for starters. Sounds daunting, but it isn’t. You just need to realise that not doing it will end up being more scary.
Running a lean, mean fighting machine that works with the economy is step 3 and step 6 of our 9 steps to working less, earning more and creating awesome wealth. If you want to know more, contact hitesh@medisuccess.com.au or call 07 3172 0819.
