Iso-shoppers an encouraging sign for economy

Shopping from home has continued throughout the lockdown period and is an encouraging sign for the economy.

A new drug addiction is sweeping US, Australia and other developed countries: isolation in the home. The isolation drug creates a desire to spend larger sums on certain retail goods and is fanned by the ability to buy online.

And, like other drugs, somehow people find the money to satisfy the addiction to spending created by isolation. In Australia, JobKeeper, loan relief and superannuation drawdowns help raise the money.

In both the US and Australia isolation has aroused a desire to buy home improvements and appliances. In the US, once restrictions on going to restaurants and other activities were relaxed, their isolation driven consumption moved into clothing. People needed the right gear as they ventured out of their home. And so American retail sales of clothing, home improvements and appliances last month skyrocketed, much to the bewilderment of retail analysts who didn’t understand what happens to people who are confined to their homes.

In contrast, in Australia outdoor activities have been restricted, so clothing has remained very depressed.

But just as in the US, Australian sharemarket analysts have not understood the impact of isolation on consumer spending. And so this week after watching big sales rises from groups like Bunnings, JB Hi-Fi/Good Guys and Harvey Norman, the market still sent Beacon Lighting shares up 20 per cent when it announced how the isolation drug had also boosted its sales.

ABS off the pace

One of the reasons why Australian share analysts didn’t pick up the boom is that our Australian Bureau of Statistics is way behind in plotting what’s taking place. I have regularly reported that the boom in Australia started after Easter and really gathered pace in May. Groups like Bunnings, although reporting strong sales, understated the magnitude of their sales increase in May, when many stores experienced 40 and 50 per cent rises. And similar results have been enjoyed by most of the participants in the boom . And from what I can glean from store mangers, the boom has extended into June.

Harvey Norman chiefs Gerry Harvey and Katie Page have continued very strong media advertising in June and would only do that if it was continuing to generate big sales. Both have experienced many boom and busts and know that when the consumers are spending you maximise your sales.

One of the reasons why appliances and home improvement sales have done so well in Australia is that there has been no other place for the isolation drug to channel the spending it creates.

But this month and next will see a considerable relaxation in the rules governing restaurants bars and other leisure spending outlets. It remains to be seen whether these extra spending opportunities will stunt the growth in appliances and home improvements.

Pain delayed?

When I look at Australian unemployment and the large amount of deferred bank loans it makes me very nervous. And that nervousness is compounded by the undoubted existence of large numbers of zombie companies that will not exist after JobKeeper.

But the consumer spending drive is incredibly encouraging and with targeted help after September (when the programs run out) we may be able to avoid the disaster that the bank loan figures foreshadow.

If the federal government was to embrace the COVID-19 recovery plan that small business ombudsman Kate Carnell set out we would see a transformation of the Australian economy and its employment creating power. I think there’s a good chance that the ALP would support most if not all the key Carnell recommendations.

We are not talking about a V-shaped recovery but one that will overcome a lot of the damage created by the economy shutdown. But it’s going to require a government that thinks outside the square and make the changes to the employment creating segments of the society, such a small and medium business rules, that are long overdue.