Economy continues to ignore Rate Rises - Soft landing looking less likely

Blog Categories , Insights

1 November, 2023
As at 9am, AEST.

Spot pricing for Gold $AU3134

Spot pricing for Silver $AU36.16

Spot pricing for Platinum $AU1489

The US GDP grew (and so has Australia’s) by twice the expected rate for the month of September. With so much growth, on the back of repeated aggressive rate rises it is looking more and more unlikely that our economies will simply ‘gently respond to the FED’s requests’ and will need to be ‘sent to their room with no TV for a bit’.

So it is apparent that consumers are still spending. Annualised GDP in the US is now measuring 4.9% (up from 2.1%) and this will now ensure yet another rate rise is on the cards before Christmas.

But why are people still spending? Previous generations that have incurred the wrath of higher interest rates generally curb spending within a reasonable period, GDP and CPI ease off and then interest rates can generally ease as well. One theory of consumer spend that may have merit is the current generation of consumers is burdened by the economy of ‘subscription payments.’ Either through engrained spend behaviour, an inability to remove subscriptions or simply too busy to remove the subscriptions means that consumers keep spending, forever. Through trying to make services more affordable by breaking them down into smaller payments, consumers are now stuck (trapped) in an endless cycle of payments.

Consider your insurance, phone/internet, rates, Netflix, Spotify, Gaming and Gym (and so much more). They are all now monthly subscription based; which makes increasing their monthly pricing much easier to sell, in comparison to stating what the annualised increase in fee would be. With cost of living affordability now a massive discussion point in Australia, the unfortunate best solution presented thus far is to break down utility/service payments into even smaller increments, which will generate even more subscriptions that consumers become enslaved to (ie, can’t afford your rates? We now have a monthly payment plan for that).

As a last thought on subscriptions, think back to previous inflationary periods in economic history.

Consumers simply turned off utilities, services or entertainment to save money.

Today’s consumers simply don’t have this ability anymore.

Enjoy today’s charts.

Gold daily, with 200MDA