Having enjoyed predominantly strong economic conditions for much of the past 20 years, it’s clear many of us just like to spend up.
WHEN is consumer confidence going to re-emerge?
It is a question that’s asked regularly in a variety of ways – not always directed at retail consumers, but I tend to use it as a proxy for the health of the entire economy.
There is no doubt the resources sector and those directly linked to it are thriving again.
But underneath that there are many sectors suffering from the GFC overhang.
The real estate market is in a hole many think will take at least a year to clamber out of. Partly that is because first-home buyers were overstimulated and have left the market, a fact that also affects the new home builders.
Retailers are also challenged, partly because consumers have gorged themselves on many of the things they don’t need but also because online players are siphoning-off customers – not just for traditional goods bought on the net, but also with a new range of entertainment options that spread the discretionary dollar more thinly.
With Western Australia booming at some levels and unemployment back below levels many consider full employment, part of me also wondered if the current reluctance to spend could signal the emergence of a longer-term trend.
Burned by the GFC, would we see the general population become more debt averse and less conspicuously consumptive?
On current evidence the answer would be yes, but in digging a little deeper it appears that might be wrong – for most – because profligate spending is hardwired into much of the population.
In coming to that conclusion I’ve talked around this issue among peers, contacts and even experts such as Bernard Salt.
From those discussions it seems the general view is that hard times only impact on those who are deeply affected at a formative or vital time of their lives.
The Great Depression is viewed as the most extreme version of this phenomenon.
A large group of people affected by the Depression fastidiously avoided debt all their lives and were constantly worried about the possibility of another similar crash. People who were near adulthood or young adults, known as a ‘cohort’ in demographic terminology, were most deeply affected because they often saw their families lose everything without the benefit of understanding how the wealth was accumulated in the first place.
For many that scarring lasted most of their lives. By contrast, the post-WWII generation of baby boomers barely saw economic difficulty until the early 1970s, when oil price rises shocked the economies of the Western world.
The late 1970s and early 1980s had structural issues that affected the economy, but the first major crash in decades occurred in 1987, ultimately followed by the recession of the early 1990s.
As a graduate who lost my first job to the 1987 crash and worked through the recessionary times that followed, I won’t admit to being scarred but I do recognise a difference between those of my generation and the ones who were slightly ahead of me, splurging in the late 1980s spendathon.
Those whose early careers preceded the 1987 crash were noticeably, to me, more optimistic – believing that by spending the money they earned, more would follow.
Even if they lose everything, people from this generation will bounce back and have another go.
Those who came after for a brief few years are clearly more cautious. Even the entrepreneurs among them take more considered risks.
I have observed this for the past 20 years, even in the heady times of the past decade. Since the early 1990s, generally, things have been very good – particularly from 1996 to 2008 – with the exception of those caught in the tech bubble.
The point I am making is, if bad economic times in their formative years make a person permanently cautious and debt-averse, the reverse occurs for those who develop their careers in the good times.
But the periods of economic difficulty are short compared with the better times, which means only a relatively small number of people are deeply scarred by their experiences.
The same will have occurred during the GFC. Mr Salt reckons that, given Gen Y’s predilection for staying at home, it may be the late 20-somethings who were most scarred by the GFC, caught out just as they were establishing their own home and needed job security and income to make their break.
But that is a tiny slice of the total working population, most of whom sucked their guts in and acted skinny for a couple of years until the feast started again.
If that is true then most of the community’s spending patterns are dictated by their exposure to a strong economy when they entered their careers. In effect, our society is overweight with them.
That means that the current lack of consumer confidence is a temporary aberration, which will soon be overwhelmed by the optimists’ need to get back out there and spend.
It’s just what they feel comfortable doing.
Mr Salt estimates that it may be as little as three or four years until the normal cycle of spending our income before we earn it returns.
If that is the case, we are closing in on that date, because the GFC really hit in late 2008 and early 2009.
About this time next year, the short winter will most likely quickly kick into a long summer again.
LAST week, speculation over the cost of Oakajee occurred while I was taking a good look at port development around the state.
I was struck by how much Oakajee differs from the two biggest port developments expected in WA – the Cape Lambert expansion committed to by Rio Tinto, and the potential for an outer harbour at Port Hedland, which BHP has alluded to as something it wants to do.
Both are so-called finger wharves. Long jetties that go out into relatively open waters.
In the early days of the Swan River Colony, Fremantle was such a set up and that didn’t change significantly until CY O’Connor fully developed the current harbour by blasting open the river mouth and dredging the first kilometre or so.
WA’s lack of natural deepwater harbours has meant finger wharves were used in many places. Busselton’s is famous but look at places like Hamelin Bay for evidence of their use.
Why can’t Oakajee’s proponents and the state government look at such an option, at least in the first stage, especially with new technology available such as the Cavotec suction system being used at Port Hedland? At 45 million tonnes per annum, just two berths would suffice, presumably at a cost far below the speculation of more than $6 billion.