There is always a great deal of discussion about consumer confidence going into Christmas. It is a busy time of year for travel, tourism, retail, groceries, etc. In October businesses, government and households were holding their breath leading into this busy spending period - mostly hoping for continued low interest rates, ie. cheap money, easy money. However, the reality is that easy money is easily spent and as such the money flowing through the economy is starting to speed up again. As money speeds up, businesses need to hire more labour. As labour demand increases the RBA is moved to act, in this case rase rates early so that the economy doesn't bounce back too hard, so it raises interest rates, ie. tightening the money supply, effectively making money (borrowed money) more expensive.
There is caution because of what economies have just come through in the last year or so, note this article in response to recent interest rate rises (october): http://www.theaustralian.com.au/business/news/rba-rate-rise-premature-says-anz-chief-mike-smith/story-e6frg90f-1225792367182
But despite the recent interest rate rises this is what we have just found out, in fact will lead to more rate rises(december): http://www.theaustralian.com.au/business/markets/fall-in-unemployment-rate-fuels-case-for-rba-to-lift-rates-in-february/story-e6frg926-1225809074692
There are a range of mechanisms for fine tuning our economy so that it doesn't grow to quickly - overheat; cause price instability; inflation - or too slowly - recession; unemployment; stagnation - quite a difficult balancing act. It is interesting stuff to learn more about, to watch the RBA in action as they attempt to create conditions which favour long run growth and price stability, it is also very interesting watching people squirm as rates move - there'll be more discussion on this. In the meantime, enjoy the bumper Christmas spend and get swept up in the event. Whilst your doing it, make sure your doing it on debit.
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Despite the interest rates over the past three months, consumer expenditure continued to grow for the Christmas spending period. This shows that despite previous consumer uncertainty in 2009 due to the GFC that people are more willing to spend on goods and services for the Christmas holiday period. One concerning fact however, is that many of these goods and services are purchased on credit, and quite often possibly would not be available if purchased on debit. I have learnt this from my recent employment in a Petrol station alone that at least 70 to 80% of customers purchase fuel and other goods on credit.
This therefore, creates a level of difficulty for the RBA to manage the sudden burst of expenditure for the three month period. What the RBA would also have to juggle in their ‘balancing act’ is the large amount of debt that has been produced, will become largely obvious to the public once people begin to receive their credit card bills in late January.
However, in terms of economic stability, despite the large amounts of goods and services being purchased on credit, a larger increase in employment levels, mainly in the short term for the Christmas period, and possibly the long term sector, it would also reinforce the possibility of a strengthened employment protection due to the large influx of wealth. "The majority of December so far would be pointing towards meeting and exceeding last year's trade and last year was up over four per cent on the year before, so it's positive and it's strong and we would hope that would be the case in the biggest employment sector in the country so a lot more jobs can be protected. " (http://www.abc.net.au/news/stories/2009/12/15/2771790.htm -Scott Driscoll)
This increase in employment will also influence future RBA decisions regarding the economy, despite the large credit bill that consumers will be hit with in the near future, the increase in expenditure has surely reinforced the strength within the Australian Economy.
I hope you are all well and are having an enjoyable and safe holiday and Christmas.
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