Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Friday, 4 July 2014

Eating out doubles every 7 to 10 years...

Retail soft

After a strong year, yesterday's retail trade figures showed turnover falling by 0.5% s.a. in May, perhaps to some extent impacted by the budget and a hit to consumer confidence.

Increasing household consumption, as has been the case in many developed countries, has been a key driver of economic growth for Australia over the long run (click chart):


And low interest rates have seen retail trade surge over the past year. But as noted, yesterday's data showed a 0.5% m/m seasonally adjusted decline. Although there is still the June data to come, it therefore looks quite likely that weakening retail and household consumption will subtract from GDP growth in Q2 (click chart). 


At times I probably come across as having rose-tinted glasses when it comes to the Aussie economy. There's a good reason for that - neatly encapsulated in the photo below - which I took on a Sunday in May. That is, I live in inner-city Sydney, where we have few such concerns locally.


No recession here! In fact, not only are we in the midst of a boom in total construction work done (+40% in only two years), retail has been going great guns over the past year too, and NSW turnover continued to lead the way, rising once again in May (+0.4% m/m, +7.3% y/y).

Over the forthcoming couple of years, New South Wales is in sound economic shape, as the annual retail turnover figures emphasise, while mining locations are still transitioning towards the production phase of the mining boom, necessitating low interest rates (click chart).


Indeed, New South Wales has been a very strong long-term performer in retail trade.


That said, post-budget even NSW retail does appear to have been becalmed a little after a punchy annual lift in the year to March (click chart):

Eating out

The one sector which continues to demonstrate extraordinary growth across Australia is retail trade turnover for caf├ęs, restaurants and takeaways.


While people seem to have a tendency to believe that household budgets are unusually tight today, this overlooks that nationally wages growth over time has outperformed CPI across all income levels.

Ultimately, spending patterns have been and are shifting, as I looked at in a little more detail here. All of which means that for those who want to get ahead in investment and their personal finances, it's important to buck the trend towards increasing discretionary expenditure in line with income growth.

In Australia as a nation we have more disposable income than previous generations, and this continues to be reflected in the monstrous increase is discretionary spend for eating out (click chart):


Zooming in the chart shows that low interest rates have kept this trend intact over recent years too, showing that household budgets in aggregate are clearly not "stretched" in the manner claimed, rather they have different priorities, which include a far greater inclination to travel and muchos eating out (click chart):


Summing up...

-slowing retail in South Australia, Queensland and Western Australia (at least, until net exports take over and the economy eventually rebalances away from mining construction), and possibly Victoria;

-New South Wales economy continues to look in very good nick;

-the economy may struggle to record much (any?) growth in Q2;

-interest rates likely to be on hold for a long time to come.