You Need to Look Behind The Economic Data

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A NUMBER of journalists and economic pundits seem to have been focussing solely upon the latest GDP figures.

However, the recent NAB monthly business survey appears to contradict concerns about the shaky household consumption sector – where the main concerns seem to relate to past issues.

Mainly things like … the end of the mining boom, resulting in a collapse of wage growth.

Past Events

As such, households are still feeling the anguish of an earlier decline in economic activity.

Whereas, business sentiment is buoyant – because of a lower currency, lower interest rates and stronger overseas demand.

In turn, that will result in more people being hired – leading to renewed growth in wages.

What is really going on?

If you’re prepared to delve a little deeper, you will find consumers are still spending. In fact, household expenditure grew by 3.8% during the March quarter.

And in particular, the improvement was in items like … utilities, healthcare, transport, education, financial services and insurance … where you saw a 4.2% growth in the expenditure.

So, while household income may have only grown by 1.8% … clearly, consumers have redirected their spending towards the service sector – and away from the traditional retail sector, which continues to struggle.

The decline in the mining sector has also helped redirect activity towards services. Plus, the influence of IT and an ageing population has accelerated the demand for services – which has now increased from 40% to 48% of household consumption.

You now have a clearer picture …

Most economists seem to have overlooked this transition – preferring to focus on unemployment and GDP figures to measure the size of the service economy. And that’s because, unlike retail sales, there is no official gauge of services spending.

As such, they identify a decline in retail spending and report this as a blanket slow-down in economic activity.

Whereas, service sector growth is more labour-intensive; and will therefore have an increasingly positive impact upon employment levels. This, in turn, will reflect in an improved level of household income.

Bottom Line: Don’t get blind-sided by traditional economic analysis and reporting.

Yes, weak spending by shoppers should continue to make you wary of retail property, as a solid performer.

However, the good news is … that the service sector mainly occupies office space. Therefore, the office sector stands to benefit from what will be a growing tenant base.


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