The Economy - How a horse race reflects sentiment

by Alexander Beard Group, on Nov 18, 2019 2:25:54 PM

There are many indicators used by economists to measure the state of the economy. Most of these are based on complex financial algorithms that calculate the fiscal state of affairs and help predict future trends. But is there a simpler formula?

The Melbourne Cup is a 3200metre flat race held on the first Tuesday of November and is affectionately known as “the Race that stops a Nation”. The race has some interesting numbers……

Attendance at the Racetrack has steadily fallen in the last 10 years from 110,223 lucky/unlucky punters in 2010 to 81,408 in 2019.

Total money “punted” in Australia in 2010 was $145M and in 2019 was $106M.

There were 11 arrests for “drunk and disorderly” in 2010 and 1 in 2019.

Numbers are down, no doubt. Why? Well it’s that question and its broader application that has the economists baffled. The Federal Government in Australia handed out a $1,000 tax “gift” to 10 million taxpayers this year with the expectation that this money would be spent and help stimulate the local economy. But this quarters consumption figures tell a different story – consumption was actually down despite all-time record low interest rates and the tax gifts. So, where has the money gone if not being spent?

Anecdotally there is a suggestion that people are holding on to their money, almost in a “saving for a rainy day” manner. Looking deeper though, the increase in cost-of-living is the more likely culprit. Grocery prices are up, utilities prices are up, personal insurance costs are up, and the cost of driving is increasing (fuel, insurances, licensing etc). Wages growth is virtually non-existent as by some magic-trick the consumer price index (inflation) is very low. Debt levels also remain at record highs.

All-in-all there is less money around for essential living, with the result that money to splurge on once-a-year events is less abundant. There are strong calls for the Government to provide extra stimulus to the economy: more tax cuts; infrastructure spending etc, however the Government is determined to return to Surplus in 2020 so this is unlikely to happen. The consequence? The first Tuesday in November may no longer “Stop the nation”.

Dave Stone
Managing Director - Australia