Consumers and business head in different directions

Consumers and business can only be out of step for so long — and 2023 will see a reckoning, writes Pendal’s head of government bond strategies TIM HEXT

WE ALL exist in the same economy — but you’d be forgiven for thinking otherwise. 

This week we had new consumer and business sentiment data.

Early last year consumer confidence boomed as escaped from lockdowns with money in our pockets. 

Sentiment hit an all-time high of 118 in the April 2021 Westpac-Melbourne Institute Consumer Confidence survey.

Now we have resumed our gloomy outlook. Weighed down by rising prices and rate hikes we’ve plunged to 81 — not far off the March 2020 low.

For business, however, it’s hardly looked better. 

The NAB Business Survey sees business conditions at 20, not far off the April 2021 high of 30 (it averages around 5).

Business outlook, as measured by confidence, is a more modest 7, nearer the long-term averages.

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What’s going on?  

Clearly while we’re worrying about the future we’re still spending our pent-up savings. 

Rate hikes of 1.75% to date have been manageable. But the next 1% this year will start to bite — heavily for some. 

Tight supply of goods and services means businesses are able to pass on higher costs, maintaining margins and seeing conditions as strong.

Of course, consumers and business can only be out of step for so long — and 2023 will see a reckoning. 

For now pessimists are winning the day as markets price in rates topping out early next year. 

Growth will slow, but whether the landing is soft or hard is a guessing game that will be heavily debated. 

Challenging times for everyone but particularly for central banks trying to bring down inflation without a recession.

However it does mean bonds are back — and their role as insurance in these highly uncertain times should not be underestimated.

About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

Find out more about Pendal’s fixed interest strategies here

About Pendal Group

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

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