State of Play: What’s Happening Now In The World Of Finance

Hi, and welcome to our State of Play today. We had the unemployment figures released today and everyone was waiting on that. Well, when I say everyone, the economists and the powers that they read a lot into employment figures. And rightly so, because if people have jobs, if they’re earning, then they’re spending. And if they’re spending, it’s good for the economy. It’s the bellows that increase economic activity. If we have money burning a hole in our pocket, because we’ve got a job and we’re earning, then we’re going to go out and spend that money. And the more we spend, the more jobs we create because business owners have to employ more staff to service the increasing demand.

So recessions are caused when we have two consecutive quarters of negative economic growth. And that is about to happen in Australia. Because, for the first time in 30 years, we have a contracting economy. No fault of our own, global factors. This virus has caused it, but that is the catalyst for us having two consecutive quarters of negative growth. And it’s not likely to improve because people aren’t earning. So they’re not spending. And there’s no light at the end of that tunnel. In fact, if anything, those figures mask what’s really going on because we haven’t seen the worst of this yet.

So the prime minister gave a press conference today about all of this. And I mentioned this because it means that everyone’s hungrier, everyone’s leaner. And if people are hungry, it means you can get better deals. You just have to adjust your paradigm, adjust your thinking. There will be opportunities out there right now. As Darwin once said, “In times of change, it’s not the strongest or the smartest who thrive. It’s those who are most responsive to change.” So your adaptability right now will be key.

Entrepreneurs thrive on change because change brings opportunity and entrepreneurs can think on their feet, they can be creative, they can problem solve. And they’re able to really hit the [histraps] when things change. Because when the status quo is strong, we kind of have a, if it ain’t broke, don’t fix it, attitude. So there is opportunity amongst this joblessness, not just for jobless people to reinvent, recreate, and get very resourceful about their future, but also for everyone else going about their business. So for example, when people don’t have money, they’re unable to borrow, banks aren’t unable to lend as much, and they’re hungry to write loans. So it will result in lower rates. Rates are really good at the moment. And if you haven’t revisited your interest rate and you are lucky enough to have a job right now, then you should look at getting a better deal. We’ll look at that in a moment.

Let’s look at what happened today and what the figures mean. So Scott Morrison came out and said, 1.6 million Australians are on the job seeker benefit right now. So that’s where they get $1,100 a fortnight. They’ve effectively doubled what was Centrelink benefits or the Dole from 550 a fortnight, a week, a fortnight to 1100. So the other thing that they’ve noted is 6 million Australians across 860,000 businesses are receiving the job keeper. So the business actually registers with the ATO to get the job keeper allowance for 6 million employed Australians. So that figure skews the results because 6 million people who may not be working at all are still effectively recorded on the payroll and are collecting $1,500 a fortnight. That’s what job keeper is. So it boosts our figures.

If we were to look at the real numbers, it would be closer to the 10%. But the figures came in today at 6.2% unemployment. What Scott Morrison said is that both these packages are designed to end in September of this year. His exact words were, “That they were put in place in anticipation of this day.” So Scott Morrison was kind of saying, we expected this. In fact, it’s better than we expected. What was put on the cards was 8% by the middle of the year. So end of next month, 8%. Right now, 6.2%. So it’s really measuring the last month or so. And we always knew that a lot of people had lost their jobs. So it was put in place in anticipation of this day because we knew it would come and more will follow. So we are not through the worst of this yet, Scott Morrison was saying. He spoke about the 1990’s recession. He said, “I graduated university in the early ’90s recession.” And he said, “That was hard. This is harder.” So it wasn’t sugar coating at all.

The biggest damage was to the casual and part-time workers, especially in hospitality. So a lot of younger workers, especially age 15 to 24 will fall back on those sorts of itinerant jobs and jobs in hospitality that aren’t there anymore. So the figure, the unemployment rate there is a lot higher. So 13.8% for that sector in that area. And that’s only going to get worse as well. So they’re more than double the national rate of employment.

Now, the unemployment rate that came out today is not measured by those registered for Centrelink benefits or anything like that. They actually measure it via the Australian Bureau of Statistics that has a survey group that it polled. It then multiplies that group out to get the national average. And they do that by a much greater study than any other study. You may have heard of the Roy Morgan poll that came out the other day to measure business confidence. It was off the charts low. We’ve never had it that low since the poll started. But the Australian Bureau of Statistics pool that it measures is 15 to 20 times larger than traditional polls, so get more accuracy. But as with anything, it’s not accurate. They haven’t gone around to every single house in Australia, knocked on the door and said, “Where are you at?” They’ve just used a holistic approach and they’re working the averages. So the official rate then is 6.2%.

They also measure from that group, what they call the under utilization rate. So that’s a combination of official unemployment, people who’ve lost their job and are looking for a job and haven’t got one, but also what they call under-employment. So they’re people who have a job, but are not getting enough hours. So officially, if you work one hour a week, you’re not unemployed, but obviously there are people out there who may be able to get one hour a week tutoring a kid in maths or something but they would much rather have a 40 hour week, but they’re still not regarded as unemployed. So that’s called under-employment. So when you combine under-employment and unemployment, it’s actually hit a record high of nearly 20% right now. So 20% of Australians are either unemployed or not working to their full capacity and to get into the under-employment category, you only have to work one hour a week.

So the wage subsidies that run out in September are going to just cause this to go through the roof. There’s talk about, oh, they’re going to get rid of job K, because we’ve snapped back and the economy’s good. I don’t believe that will happen. And I’m listening to the prime minister’s talk track and he’s ruled that out. They’re more likely to keep that in place because these figures are actually quite dire. 6.2% in and of itself is not recession material. We’ve been there before. And it’s been okay. But what we’re really looking at here is what’s not in that data, what’s hidden and what is yet to come. Because we’re still in a shutdown mode and it’s going to take a long time to get out of that and get back to where we were. So the prime minister is already factoring in years. And they’ve said, there will be some collateral damage. Not every business will get through this. It’s a bit Darwinian. It’s survival of the fittest. People get winnowed out. So more job losses will come.

So when we look at the numbers, what we really should be looking at is the number of hours worked. That’s where the true story is, not who officially has a job or doesn’t have a job or is looking or not looking. What we look at is who is actually out there shoulder to the wheel, producing work and hours worked will tell us that. That’s a real measure of what is happening in the economy or economic activity. So they look at the participation rate. So that’s where people have just given up looking or aren’t trying at all. This chart shows the number of employed people. And we can see that as just dropped off a cliff in April of this year, compared to previous years. So that’s year on year. So people are getting more and more jobs. Our economy was growing and now that’s all just come to a grinding halt. But the better figure to look at, and the better data is the under-employment.

So Ernst and Young have produced a report that says 594,000 Australians lost their jobs last month. Those on the job keeper subsidy are still counted as being employed. They’re not counted as losing their jobs, even if they’re not working at all. If they’re still on the books and their employer is collecting job keeper and passing it onto them, then they’re seen as employed. So we really need to look at the hours worked. And the hours worked by people fell 163.9 million hours in the last month. That is a true indicator of what’s happening in our economy and why our economy is shrinking. And when your economy shrinks, you have a recession. And they’ve said, this recession is going to be quite deep.

To put it all in perspective, the last massive drop that we had in monthly decline of hours worked was 36 million hours back in 2007. So just before the GFC, now it’s 163.9 million. So we’re going to have an economic contraction. The under-employment rate, people who are not working to capacity, they’re just working like one hour a week to get them out of the unemployed category, but would like more hours, that jumped from 8.8% of under-employed to 13.7%. So that’s the highest since these records were kept in 1970. So massive jump in under-employment. And the figures are also quite startling because half a million Australians actually have left the labor market altogether. So if we’re looking at the whole pool of the labor market and the percentage of people without jobs, that labor market itself has actually shrunk. So fewer people out there working or looking for work. And that’s the baby boomers retiring, demographically that was always happening, but people unable to work with children at home, that sort of thing, leaving the workforce.

The participation rate fell a significant amount, and is at the lowest since 2004. It has traditionally been increasing as women returned to the workforce. And now it’s, unfortunately, all those gains have just been lost in one month. So the ABS, the Australian Bureau of Statistics, figures looked at under-employment and said that 2.7 million Australians have either lost their job, had their hours reduced, or left the labor force in the last month. So we can see under-employment is up near 14% compared to unemployment. That’s tipping over at the 6.2%. And that’s going to hit critical mass, obviously, in September when job keeper runs out, moratoriums on loans run out, all of that happens and things hit a head of steam.

So before that happens, and if you’re lucky enough to still be earning an income, now is the time to prepare. Now’s the time to get your ducks in a row. Banks are still lending if you’ve got a job. If you’re unable to show payslips or earnings, then you’re a significant risk, but they are wanting to build up loan books still because remember they get their money from interest payments on loans. So interest rates are at historical levels. And if you haven’t adjusted your loan in the last couple of months, you will be paying too much. You’ve got to shop around. So most people who even refinanced in the last six months are still probably paying a percentage, a full percentage point more than others who’ve changed more recently.

So just so you’re aware, forewarned is forearmed, for your residential owner occupied, so your principal place of residence, a variable rate can be anywhere between 2.79 to 2.85% right now. So that’s principal and interest. You’re paying it down. Or an interest only loan, anywhere between 3.5 to 3.55%. If you want to fix, probably the best thing to look at is two year, 2.19%. Here you can even fix for one year at 2.18%. So that’s principal and interest, and it’s better if, of the three years, the rates get higher. So within three years, that tells us that the banks are probably thinking things will get back to normal in three years. So you’re spreading the risk.

And indeed, that’s what a lot of economists are saying. Like a cork will go down for a bit, but in 2022, Australia will have come through the worst of this and be getting back to normal. An interest only for three years is at 2.95%. In a nutshell, your repayments, your interest rates should have a two in front of it right now. And if it doesn’t, you need to either go to your bank and negotiate. Say to your bank, cut it out of the newspaper, or print it off the internet and say, “Here, I’m looking at going to this other bank, fix this for me and match this rate.” And if they don’t, then you need to go elsewhere because it’s very competitive market right now.

In terms of investment properties, variable rates are between 3.05% and 3.14%, that’s principal and interest. And if you’re just paying interest only 3.05% to 3.59%. So it should have a three in front of it. Very low three’s there. If you’re fixing with an investment property, principal and interest 2.64% for two years. You can fix for one year for even less. And there are the other numbers up there for three years.

The other thing that banks are doing right now, just to get your business, to get you over, to change lenders is that they’re offering cash back. So if you use your feet and walk to another bank, you could get anywhere from between one and a half thousand to $4,000 per property that you change over, depending obviously on the lender that you use, and different lenders have different criteria.

If you’re in the business world, if you own a business, commercial business loans, on a variable rate between 4.79% and 5.59%, that’s principal and interest, although there’s a really good rate out there right now, two to three years at 2.59%. So obviously the refinancing route and locking it in for two to three years, you’d have to have some element of certainty, A, about your business and B, about your income. But I realize that it’s a bit of a two tiered economy again right now with some people doing really, really well, some people who’ve lost their job. Either way, there are always options for you.

So all of these slides I’ll make available if you want to study those numbers further. They will be on our COVID-19 webpage. So that’s on our website. If you go to dginstitute.com.au, in the top right hand corner, you’ll see COVID-19 as a tab. If you click on that, it will take you to that page, and there’s all our resources there. So recordings of everything that we’ve been doing to update you through March and April, as well as slides from these sessions where we’ve had graphs and numbers, and we’ve got online courses there too. So wherever you’re at, especially if you’re in that under-employed, unemployed category that’s been hard hit with an economy going into recession, down the bottom, we’ve got online courses for you. And one that you should look at, that’s really, really valuable, when I talk about opportunity and renegotiating things and taking advantage and doing things a bit differently. Winds of change have blown, won’t blow you off course, but you’ll need to adjust your sales. And one really valuable skill is navigating your way through debt. So really valuable. Of all the online courses there, would be, Debt Mastery.

So I’ve made that available. It’s something we usually offer via our website as a paid program, but I’ve made it available because of COVID. So if you’re unemployed at the moment, if you’re struggling, if you’ve got debt issues, that’s a really great resource. Of all the online programs that we do, that’s a valuable one to get yourself through this and there are other things there about your goal setting, your commitment to your future, just keeping focused right at the moment. Keep the main thing, the main thing. So really look at your own financial affairs.

Now that we’ve somewhat stabilized and we’re navigating our way back to normal, and the government’s supporting us through that, stimulus packages, banks doing what they can, loan holidays, the next six months is time where you have to sprint and consolidate because come September, things are going to change further. We’re going to see a slow rotting and deterioration. And then when all the stimulus packages and the bank holidays and the loan moratoriums and the freezes on bankruptcies and insolvencies and winding ups, when all of that lifts and tenants have to pay rent again, because don’t forget, we’ve had the mandatory code of conduct for leases. All of that will change come September. So this is your breathing space to get your ducks in a row. Whether you’re doing really well, still should be looking at your interest rates and getting it down low as possible in this window and getting your house in order. And the other thing, if you are in financial hardship right now, you need to come to a longer term agreement with your lender and get that locked in so that you can get your way through this.

We will come out of this and obviously there’s always light at the end of the tunnel. There are options out there on the other side, but now we’ve been given a lifeline to really get ourselves in the best possible position to find advantage and opportunity out of the adversities right now. So use that time, skill yourself up, get the right knowledge, and forge your way forward. As always everyone, take care, stay safe. Look after one another. And we’ll talk in our next State of Play, next Tuesday at 4:02.