As I observed a few days ago, the RBA was ambitiously punting on...

As I observed a few days ago, the RBA was ambitiously punting on a "new normal" in conservative consumer behaviour. And they believed this new normal would persist. In short, they reckoned households would save more than they had in the past, gear up less, and generally "make room" for the booming resources sector. The point being that the RBA is expecting very strong household income growth over the next year or two, and does not want to see all sectors of the economy booming at the same time for fear of stoking inflationary pressures.

The RBA's thesis was that consumers had been seared by the experience of the GFC, and the post-GFC mindset was very different to their pre-GFC behaviours. I never really bought into this idea. In fact, I have put on the record that I thought the risks were skewed in a very different direction. As Joe Stiglitz apparently opined, Australia's contribution to the GFC was its name, and that's about it.

Aussie consumers did not lose their jobs (UE peaked at just 5.8%), did not experience high defaults, and did not suffer big falls in the value of their housing wealth. On the contrary, they had cash thrown at them like it was going out of fashion with the third biggest fiscal stimulus in the OECD.

Aussie consumers were told that this was the worst financial crisis in 75 years--but their disposable incomes rose strongly. No, the risk with the Aussie consumer is that of hubris. They might not gear up quite as much in the past, but with reasonable interest rates and bounding optimism, it was no surprise to me that household spending shocked in yesterday's stunning GDP print. There were a lot of investors out there who were punting on poor data and the RBA having to cut rates. They have now done their dough....


http://christopherjoye.blogspot.com/2010/09/gdp-surprises-on-upside-with-cautious.html#more