Job ads rebound
ANZ released its job advertisement series yesterday, and it showed a healthy rebound in job ads in April.
This takes the series to its strongest level in two-and-a-half years.
The trend estimate figures has now been rising for 18 months consecutively, which is great to see and commensurate with the recent moderate improvement in the Labour Force data.
There appears to be a prevailing view that cutting interest rates "doesn't work" because, well...just because.
No actual evidence required, evidently.
Low interest rates and stimulatory monetary policy do work eventually as recently evidenced by sharply declining unemployment rates in the US and in the United Kingdom.
However, these factors can take time and a level of confidence to work their magic.
Lower interest rates can boost the prices of asset, such as stock market valuations and house prices.
Higher dwelling prices enable existing home owners to extend their mortgages in order to finance higher consumption.
Higher share prices raise households’ wealth and can in turn increase their willingness to spend.
Take the example of an individual who purchased a home in Sydney in 2008, when standard variable mortgage rates were close to 10 per cent.
Today the lucky homeowner has a standard variable mortgage rate which is likely to be well below 6 per cent.
Low interest rates have made mortgage repayments exceptionally cheap for existing homeowners, accounting for the remarkably low levels of household financial stress at the present time.
Meanwhile the value of the home has probably increased broadly from $600,000 to $900,000, a significant boost to net worth.
To date the wealth effect may have been to some extent dampened by subdued confidence.
In aggregate household wealth is at all-time highs.
However, cash and deposits are also at all all-time high of $903 billion representing some 22.8 per cent of financial assets, which is now well above the decade average of 20 per cent.
Homeowners have also taken the opportunity to build up record mortgage buffers in recent years.
Given that dwelling prices have increased materially over time in Sydney and Melbourne, if confidence can return - which it will in time - the wealth effect on consumption could be mightily forceful.