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A couple of weeks ago I bought a new microwave, and told my mate how good it was.
A few days later my phone pings with a picture on WhatsApp. He has bought the exact same new microwave. I was still looking at the picture when my phone pinged again – a picture of the huge new TV he just bought.
He’s gone appliance-crazy, and he’s not alone. It’s a spending frenzy in Australia right now. We are buying homewares and electronics at a level never before seen in human history. And the repercussions are going all the way around the world.
JB Hi-Fi’s stock price is at a record high because sales at JB Hi Fi are also at a record. The former CD retailer released preliminary results a couple of weeks ago showing that in the last six months it sold a record $5 billion worth of stuff – TVs, fridges, etc. – and made 86 per cent profit. Harvey Norman is performing likewise.
Demand for homewares and appliances are so high they’ve even been showing up in the inflation statistics. With demand high, retailers are nudging up prices as the next chart shows. Homewares inflation is running far above the overall level of inflation, which is low at 0.9 per cent.
I thought I got a good price for that microwave, but looking at the chart above, I probably got screwed.
An interesting side effect of all this is that as we inundate our houses with new stuff, we need to figure out what to do with the old stuff. Google Trends shows a big lift in people looking to rent a storage cabinet and my anecdotal evidence is that charities are also getting a lot of donations too. We all need space for the deliveries that keep arriving.
The notable thing about the massive surge in purchases of stuff is it reverses a long trend. For years Aussies were spending more and more on services, as the next chart shows.
I’ve written quite a bit about how Australia is well-placed to become a services superpower. But now I am eating humble pie as the pattern in the above chart is being disrupted. And the same is happening around the world – a huge boom in the imports of manufactured goods.
And you know where those imported goods come from? China. Exports from China are going so well their ports are straining to fit in all the boats and they’re running out of empty shipping containers to put things in.
One of the ironies of this pandemic is a virus which originated in China has created the economic conditions that have caused China to boom. Now, let’s not get silly. This is not a plot, nor a plan, nor any such thing. The manufacturing boom has helped Korea too, for example. It’s just something to note with a wry smile or example.
China’s growth is very impressive. It is one of very few countries that notched up economic growth last year. They were getting basically richer while almost the entire rest of the world got poorer.
The good news for Australia is we supply China with raw materials. When their factories are going full blast, so are our mines. Despite a lot of bluster about the trade relationship, we still send them billions of dollars worth of raw materials each month. The price of iron ore is very high right now, and that is due to China.
Chinese demand for crude oil, copper, iron ore and coal is at record levels. They don’t’ have much of their own raw materials, so they depend on the rest of the world.
A world where China is growing is one where we do better too – more growth and more jobs. Which, ironically, will probably help us to spend even more money on stuff.
Jason Murphy is an economist | @jasemurphy. He is the author of the book Incentivology.
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