September 7, 2025 • 8 mins
Last week economic growth picked up slightly - still a tad sluggish, but better than expected. At the same time, household spending increased, including in non-essential spending. So does this mean we shouldn't hold our breath for more rate cuts?
Michael Thompson is joined by economist Stephen Koukoulas.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson and every Monday morning we are joined
by economist Stephen Coucoulis to look at the weak ahead.
You will find him at the kook dot com. That's
t g kouk dot com and on X using the
handle of the Kok Stephen, Good morning.
Speaker 2 (00:25):
Good morning Michael.
Speaker 1 (00:26):
Now Stephen, I just said that the purpose of this
chat is to look at the weak ahead, and really
it's a pretty quiet week coming up from the for
the economy, but last week was an absolute cracker. So
I thought we might take a look back and see
what we now know this morning about the economy that
(00:46):
we didn't know this time last week when we last spoke.
Good idea GDP was probably the headline last week. It
was an increase. It rose zero point six percent in
the dune quarter one point eight percent over the year.
This was bit higher than what a lot of economists
were expecting, right.
Speaker 2 (01:04):
Yeah, a touch higher. And the surprise, if we can
call it that, on why that growth was a little
more encouraging was linked mainly to household spending. And so
what we're seeing, I think, in these GDP figures, and
that is a gentle recovery, is that we consumers who
were more than half of the economy, your household spending
(01:27):
is more than fifty percent of GDP. We're benefiting from
rising real wages, So wages are now increasing by more
than the rate of inflation. And while we've still a
long way to go to catch up to where we
were three or four years ago, at least we can
hear a sigh of relief coming through from the consumer side.
There's been the interest rate cuts, and of course they're
still playing out that the first one happened in February,
(01:50):
and that's probably having a little bit of an impact
on consumers spending. And so these GDP numbers were showing
that annual growth, as you mentioned, one point eight percent,
was the strongest in about two and a half years.
So again we're not quite at that level where we're thinking, great,
we're doing well. One point eight percent GDP is still
pretty subdued, but the trend, the turning point is coming through.
Speaker 1 (02:14):
Okay, you talk obviously about household spending being the key
driver there, and we saw that then being reinforced on
Thursday when we had the household spending data come through
for July, which again showed that increase.
Speaker 2 (02:27):
Yeah, indeed, because that was the June quarter GDP numbers
that we were just talking about. So we get the
monthly update on household spending and again another plus point
five percent, sort of bang on market expectations. But again
the annual rate of growth is now five point one percent,
well above the inflation rate. So there's this increase coming
(02:47):
in consumer spending into July, so the first month of
the September quarter. So again that encouraging years. We saw
consumer sentiment tracking higher the last couple of months that
maybe maybe that cautious optimism that we were talking about
a few weeks ago is still coming through and still
showing up in the hard data.
Speaker 1 (03:06):
One of the points that I saw in that data
was that spending on non essentials is starting to rise.
How significant is that that all of a sudden people
are finding a little bit of extra cash and willing
to go out and spend it on something that they
don't necessarily need.
Speaker 2 (03:22):
Really important point that the essential spending, even through these
hard economic times, the cost of living crisis, of course,
almost by definition, essential spending was resident we have to
pay our rates, we have to pay our rent, we
have to pay for insurance and these sort of things.
But discretionory spending, holidays and cafes and restaurants and these
sorts of things was the area of consumer spending that
(03:44):
was weak that's now picking up. So we again greinforces
that earlier point. The consumer sentiments also high when we're
feeling optimistic, when we're feeling better, and we actually do
notice a little bit of a difference in our bank
balance that we do tend to spend more on nie
to do things. And I might just throw in there
also that the fact that, well, oh gosh, we've had
(04:04):
incredible volatiley in the share market, but generally the ax
is higher than it was previously. House prices are still increasing,
so there's a wealth effect. And when we feel wealthy
as a nation. Now not everybody's got a house to
enjoy that benefit, or some people have got a lot
of their money tied up in super but when we
feel wealthy, we tend to spend more. So all of
the stars are coming into play that a rising stock market,
(04:29):
rising house prices, rising real wages are feeding into the
consumer coming back.
Speaker 1 (04:36):
Okay, I want to talk to you then about interest rates.
And we've talked obviously about GDP being slightly higher than expected,
really positive household spending figures, a lot more optimism. The
economy is growing, yes, still sluggish. Does this make it
less likely than that we're going to see more rate cuts?
And we did hear from Reserve Bank Governor Michelle Bullock
(04:57):
last week, and she's sounding more confident now as well.
Speaker 2 (05:00):
She did, even though her set piece speech was more
about technology and AI and how the economy and the bank,
the Reserve Bank is going to be coping with these things.
There was a Q and eight at the end of it,
and of course some cheeky person asked her about the
economy and interest rates, and she gave a very frank answer,
and again in normal Reserve Bank cautious talk, she was
(05:22):
saying that, yes, the economy is looking a little bit better,
and while she's not ruling anything in or out, she
said that if the economy continues to maintain this momentum,
so if we get the next two or three or
four months of housing numbers being stronger and GDP recovering
and the like, then maybe, just maybe we don't need
too many more interest rate cuts, and certainly that was
(05:43):
reflected in the money markets, where a week or so
ago we had basically three interrastraight cuts priced in by
the middle of twenty twenty six, now it's only about
one and three quarters a rate cuts priced in. So
we've had a big move in the money markets, and
Michelle Bullock's didn't shy away from that pricing.
Speaker 1 (06:04):
Got I ask you, this is a question completely without notice.
This is something that came up last week. Migration was
a big topic of discussion last week. Obviously a week
and a half ago now we had big rallies protests
around the country, basically anti immigration protests. We did then
have the government come out through the week and confirm
the intake numbers for this year. I think it was
(06:27):
one hundred and eighty five thousand permanent Visas you talked
before about the jobs market still being tight in a nutshell,
how important is migration, How important is it for us
to be bringing in skilled workers in order to help
fill those gaps in the jobs market?
Speaker 2 (06:47):
Really hot topic and it does tend to spill over
again as we saw in the demonstrations and rallies and whatnot.
That there's some ugly scenes that come up on social issues,
you racism and those sorts of horble things. But isn't
a economists. Immigration is a really important part of the economy.
But like so many things in economics, you can have
(07:07):
too much too quickly. And I think what we saw
in the immediate aftermath of the pandemic and the reopening
of the borders was basically a million people came in
in a very short period of time and created a
lot of pressure on housing rents and these sorts of things.
And now it's coming back, as you know that the
government's sort of aiming for about one hundred and eighty
five thousand, and that is back to sort of where
(07:28):
we were pre pandemic when we allow for other forms
of migration, natural population increase, these sorts of things, that
we're going back to where we were pre pandemic. So
in a sense, that level is an optimal amount. The
government is trying desperately to make sure that the bulk
of the new immigrants have the skills that we need
for the labor market. And again, even though down to
(07:50):
ploint rate has crept up, there are still shortages of
labor in building and construction another pet project of the government.
They want to build lots more houses over the next
few years and you need lots of tradees to do
that and we don't have enough. So yeah, the migration,
it's not just the raw number that matters, but it
and we're lucky in Australia that we can pick and
choose a little bit who we have come into the economy.
(08:13):
If we can pick and choose those with the skills
that we need, it actually helps the labor market and
helps the economy to sustain. And dare I mention the
word productivity, but it actually helps productivity as well. Get
if we're importing, you know, young skilled workers into the economy.
Whack oh, we're getting a bit of a free kick
from that.
Speaker 1 (08:33):
All right. We do have a quieter week coming up
for the economy, but we almost need the week just
to take a breather after last week. Thank you very much,
have a great week.
Speaker 2 (08:41):
Thank you, Michael.
Speaker 1 (08:42):
That was economys Stephen could cool Us, better known as
the Kook. You can find him at the kook dot
com and follow him on x using the handle of
the kuk Michael Thompson And this is Deer and greed
q and a
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson and every Monday morning we are joined
by economist Stephen Coucoulis to look at the weak ahead.
You will find him at the kook dot com. That's
t g kouk dot com and on X using the
handle of the Kok Stephen, Good morning.
Speaker 2 (00:25):
Good morning Michael.
Speaker 1 (00:26):
Now Stephen, I just said that the purpose of this
chat is to look at the weak ahead, and really
it's a pretty quiet week coming up from the for
the economy, but last week was an absolute cracker. So
I thought we might take a look back and see
what we now know this morning about the economy that
(00:46):
we didn't know this time last week when we last spoke.
Good idea GDP was probably the headline last week. It
was an increase. It rose zero point six percent in
the dune quarter one point eight percent over the year.
This was bit higher than what a lot of economists
were expecting, right.
Speaker 2 (01:04):
Yeah, a touch higher. And the surprise, if we can
call it that, on why that growth was a little
more encouraging was linked mainly to household spending. And so
what we're seeing, I think, in these GDP figures, and
that is a gentle recovery, is that we consumers who
were more than half of the economy, your household spending
(01:27):
is more than fifty percent of GDP. We're benefiting from
rising real wages, So wages are now increasing by more
than the rate of inflation. And while we've still a
long way to go to catch up to where we
were three or four years ago, at least we can
hear a sigh of relief coming through from the consumer side.
There's been the interest rate cuts, and of course they're
still playing out that the first one happened in February,
(01:50):
and that's probably having a little bit of an impact
on consumers spending. And so these GDP numbers were showing
that annual growth, as you mentioned, one point eight percent,
was the strongest in about two and a half years.
So again we're not quite at that level where we're thinking, great,
we're doing well. One point eight percent GDP is still
pretty subdued, but the trend, the turning point is coming through.
Speaker 1 (02:14):
Okay, you talk obviously about household spending being the key
driver there, and we saw that then being reinforced on
Thursday when we had the household spending data come through
for July, which again showed that increase.
Speaker 2 (02:27):
Yeah, indeed, because that was the June quarter GDP numbers
that we were just talking about. So we get the
monthly update on household spending and again another plus point
five percent, sort of bang on market expectations. But again
the annual rate of growth is now five point one percent,
well above the inflation rate. So there's this increase coming
(02:47):
in consumer spending into July, so the first month of
the September quarter. So again that encouraging years. We saw
consumer sentiment tracking higher the last couple of months that
maybe maybe that cautious optimism that we were talking about
a few weeks ago is still coming through and still
showing up in the hard data.
Speaker 1 (03:06):
One of the points that I saw in that data
was that spending on non essentials is starting to rise.
How significant is that that all of a sudden people
are finding a little bit of extra cash and willing
to go out and spend it on something that they
don't necessarily need.
Speaker 2 (03:22):
Really important point that the essential spending, even through these
hard economic times, the cost of living crisis, of course,
almost by definition, essential spending was resident we have to
pay our rates, we have to pay our rent, we
have to pay for insurance and these sort of things.
But discretionory spending, holidays and cafes and restaurants and these
sorts of things was the area of consumer spending that
(03:44):
was weak that's now picking up. So we again greinforces
that earlier point. The consumer sentiments also high when we're
feeling optimistic, when we're feeling better, and we actually do
notice a little bit of a difference in our bank
balance that we do tend to spend more on nie
to do things. And I might just throw in there
also that the fact that, well, oh gosh, we've had
(04:04):
incredible volatiley in the share market, but generally the ax
is higher than it was previously. House prices are still increasing,
so there's a wealth effect. And when we feel wealthy
as a nation. Now not everybody's got a house to
enjoy that benefit, or some people have got a lot
of their money tied up in super but when we
feel wealthy, we tend to spend more. So all of
the stars are coming into play that a rising stock market,
(04:29):
rising house prices, rising real wages are feeding into the
consumer coming back.
Speaker 1 (04:36):
Okay, I want to talk to you then about interest rates.
And we've talked obviously about GDP being slightly higher than expected,
really positive household spending figures, a lot more optimism. The
economy is growing, yes, still sluggish. Does this make it
less likely than that we're going to see more rate cuts?
And we did hear from Reserve Bank Governor Michelle Bullock
(04:57):
last week, and she's sounding more confident now as well.
Speaker 2 (05:00):
She did, even though her set piece speech was more
about technology and AI and how the economy and the bank,
the Reserve Bank is going to be coping with these things.
There was a Q and eight at the end of it,
and of course some cheeky person asked her about the
economy and interest rates, and she gave a very frank answer,
and again in normal Reserve Bank cautious talk, she was
(05:22):
saying that, yes, the economy is looking a little bit better,
and while she's not ruling anything in or out, she
said that if the economy continues to maintain this momentum,
so if we get the next two or three or
four months of housing numbers being stronger and GDP recovering
and the like, then maybe, just maybe we don't need
too many more interest rate cuts, and certainly that was
(05:43):
reflected in the money markets, where a week or so
ago we had basically three interrastraight cuts priced in by
the middle of twenty twenty six, now it's only about
one and three quarters a rate cuts priced in. So
we've had a big move in the money markets, and
Michelle Bullock's didn't shy away from that pricing.
Speaker 1 (06:04):
Got I ask you, this is a question completely without notice.
This is something that came up last week. Migration was
a big topic of discussion last week. Obviously a week
and a half ago now we had big rallies protests
around the country, basically anti immigration protests. We did then
have the government come out through the week and confirm
the intake numbers for this year. I think it was
(06:27):
one hundred and eighty five thousand permanent Visas you talked
before about the jobs market still being tight in a nutshell,
how important is migration, How important is it for us
to be bringing in skilled workers in order to help
fill those gaps in the jobs market?
Speaker 2 (06:47):
Really hot topic and it does tend to spill over
again as we saw in the demonstrations and rallies and whatnot.
That there's some ugly scenes that come up on social issues,
you racism and those sorts of horble things. But isn't
a economists. Immigration is a really important part of the economy.
But like so many things in economics, you can have
(07:07):
too much too quickly. And I think what we saw
in the immediate aftermath of the pandemic and the reopening
of the borders was basically a million people came in
in a very short period of time and created a
lot of pressure on housing rents and these sorts of things.
And now it's coming back, as you know that the
government's sort of aiming for about one hundred and eighty
five thousand, and that is back to sort of where
(07:28):
we were pre pandemic when we allow for other forms
of migration, natural population increase, these sorts of things, that
we're going back to where we were pre pandemic. So
in a sense, that level is an optimal amount. The
government is trying desperately to make sure that the bulk
of the new immigrants have the skills that we need
for the labor market. And again, even though down to
(07:50):
ploint rate has crept up, there are still shortages of
labor in building and construction another pet project of the government.
They want to build lots more houses over the next
few years and you need lots of tradees to do
that and we don't have enough. So yeah, the migration,
it's not just the raw number that matters, but it
and we're lucky in Australia that we can pick and
choose a little bit who we have come into the economy.
(08:13):
If we can pick and choose those with the skills
that we need, it actually helps the labor market and
helps the economy to sustain. And dare I mention the
word productivity, but it actually helps productivity as well. Get
if we're importing, you know, young skilled workers into the economy.
Whack oh, we're getting a bit of a free kick
from that.
Speaker 1 (08:33):
All right. We do have a quieter week coming up
for the economy, but we almost need the week just
to take a breather after last week. Thank you very much,
have a great week.
Speaker 2 (08:41):
Thank you, Michael.
Speaker 1 (08:42):
That was economys Stephen could cool Us, better known as
the Kook. You can find him at the kook dot
com and follow him on x using the handle of
the kuk Michael Thompson And this is Deer and greed
q and a
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