Payton Capital Economic Update September 2022

CONFIDENCE IS KEY

Households sit at the centre of Australia’s economic narrative. They are the engine room driving three-quarters of the spending in the Australian economy. With the 2022-23 financial year underway, households again find themselves affected by extraordinary forces. On the one hand, interest rates are rising at record pace, house prices are falling and consumer prices are rising, driving down purchasing power. On the other hand, accumulated savings are strong; the savings rate remains high; and the labour market is very strong: unemployment is at lows most workers have not seen in their lifetimes.

The balance of these forces will determine the fate of the economy, but estimating their net effect has never been more challenging. Aggressive rate hikes are designed to cool the household sector, and the RBA expects unemployment to rise from its current lows as rate hikes bite. But the strong wage growth expected as a result of a tight labour market has not yet arrived, meaning the inflationary impulse of a labour price spiral is not locked in.

With evidence that the housing market is already cooling, market expectations of peak interest rates are falling. It is certainly possible a shorter-than-anticipated rate-hiking cycle will be required to reduce inflationary pressures, bringing with it less collateral damage to labour markets and a faster return to normal.

Disclaimer: The information contained in this document is of a general nature and does not take into consideration the investment objectives, financial circumstances or needs of any particular recipient – it contains general information only. The views expressed in this document are solely those of the author and are subject to change without notice.

Any financial projection and other statements of anticipated future performance that are included in this document are for illustrative purposes only and are based on assumptions that are subject to risks and uncertainties and may prove to be incomplete or inaccurate. Actual results achieved may vary from the projections and the variations may be material. Before deciding to make an investment with Payton, you should carefully read all of the information in the relevant Fund Information Memorandum, and consult with your business adviser, financial planner, accountant or tax adviser.

Reliance upon information in this document is at the sole discretion of the reader. Payton Capital Ltd is an authorised representative of Payton Funds Management Pty Ltd ABN 32 107 613 258 AFSL 284280