New data shows financial pain not seen since 1990s recession: Robert Gottliebsen

A big chunk of the population is encountering a level of financial turmoil not seen since the early 1990s, which should ring alarm bells. Picture: ChrisPavlich/The Australian

Today I issue a warning to the share market and a vast number of unsuspecting Australian enterprises, plus the Reserve Bank.

We now have up-to-date, detailed statistics that show that a very large segment of the population is encountering a level of financial turmoil not seen since the early 1990s.

Large enterprises like JB Hi-Fi are already seeing signs of the repercussions emerging in their January sales trends.

The 1990s slump followed Paul Keating’s “recession we had to have”. This time we may not have a recession because of the prosperity in mining, agriculture and the large affluent parts of our cities. But that will be no comfort to those in the firing line.

Regular readers will remember my commentary earlier this month under the heading “Deep seated anger as poverty comes to the employed”. More than 1000 readers took the trouble to comment on that article which was based not so much on statistics but on the experience of a small business person closely attuned to what was happening in his community.

Now I have statistics that elaborate on that description of the desperation and deep anger being created among people that only a short time ago were living comfortably and were among the people driving the consumer spending boom of the last two years.

Many years ago a number of larger business organisations, particularly retailers, realised they needed better statistics than those provided by the government, and they commissioned the organisation foreseechange, and its operator Charlie Nelson to keep them updated on what was really happening.

Charlie contacted me this week because he was in encountering statistics he had never seen in the 20 years of forseechange’s operation, and he knew from experience that we have to go back to the 1990s to encounter anything like it.

Foreseechange undertakes regular specialised surveys and other studies. One of its key studies is monitoring the proportion of adults who feel they have money left to spend after meeting commitments.

For the last 10 years, about 52 per cent of the population had money to spend after meeting commitments. It has been relatively steady over the decade, but was lower 20 years ago.

Then in October-November, 2022, this measure of prosperity started to fall so sharply that Nelson assumed it was a statistical error.

But it kept falling it has now fallen from around 52 to 42 per cent – a 10 per cent slump in the number of people who have money to spend after meeting commitments.

The figures show renters and recent homebuyers, who were previously spending money after meeting obligations, are the most impacted.

The statistics also show that in the last three months of 2022 most didn’t respond to (perhaps didn’t appreciate) their change in circumstances. They did not cut back their spending and relied on their savings to maintain their lifestyle.

That is now ending, and the statistics show they have dramatic plans to cut back their spending on takeaway food, restaurants, cafes, furniture electrical appliances and other areas of discretionary spending. Price rises will force them to spend more on food, and already Coles and Woolworths are seeing a change to cheaper products.

What we are seeing is just the start because the impact of interest rate rises is still flowing through, and we have an enormous number of people set to switch from low fixed interest rates to high flexible rates, so the numbers of people with little or no discretionary spending is likely to explode. The current labour shortages in these areas will come to an abrupt end. But remember, the affluent community sector will keep spending.

We all recognise the community impact of interest rates, energy food etc, but less well documented is the wage squeeze which has been most severe among government workers. Indeed, economist Callam Pickering describes what has happened this way.

“Adjusted for inflation, Australian wages have fallen by 4.2 per cent over the past year and by 6.8 per cent since their peak. More than a decade of hard-won wage gains – our blood, sweat and tears – lost over the course of just one year.

“The disconnect between wage growth and inflation is devastating for households across the country, with cost-of-living pressures easily outstripping wage gains.”

The pressure on the RBA to stop lifting rates will be immense. That will be the next chapter in the unfolding story.