Looking for Optimism When Surrounded by Turbulence

I’m a farmer, sort of. In truth, I feel a bit embarrassed laying claim to such a lofty title. In reality, I have a small plot of empty land, apart from the occasional deer I spook and a few kangaroos who stare indifferently and then bound off to further ruin my already half-baked fencing.

To be clear, I am not a true representation of the fine men and women who work the land. Even so, to my mates who will not read these meandering thoughts, I say I am a rancher, an agriculturalist, a contributor to Australia’s proud rural history.

To prove my deficiencies, I bought 25 youthful steers eighteen months ago. Having watered them, fed them and worried about their health, we excitedly imagined a tidy return. Contrary to all hope, they were sold in May for a 40 per cent loss! Yep, you guessed it, I bought them near the top of the cycle and sold them at the bottom. Just brilliant. You don’t need to tell me – I know I will never make a living from Australia’s pastures.

In my day job I am responsible for Bowens and Timbertruss. I’ve been performing this role for the past 18 years and have been employed by the company since 1993. To state the obvious, there’s a better than even chance my surname had a lot to do with me ‘earning’ my leadership position. Despite this truth, I’d like to believe I’ve made some positive contributions over the journey and am considerably better at running our timber, building products & prefabrication business than executing a farm management plan.

Considering my tenure, you’d think I would have a strong feel for the direction of the Victorian construction industry across 2023-24? Unfortunately, the contradictions are piling up, making clear forecasts difficult.

Our rugged country folk have become frustrated as they watch cattle prices tank (for all, not just me), while the cost of an eye fillet at the butcher doesn’t appear to have retreated a cent. For the housing industry, the clouds of a rude awakening seemingly echo from the lips of every economist and industry commentator, yet we (at Bowens) continue to witness the continuation of healthy activity.

“For the housing industry, the clouds of a rude awakening seemingly echo from the lips of every economist and industry commentator, yet we (at Bowens) continue to witness the continuation of healthy activity.”

We speak frequently with a high volume of customers who boast full ‘bins’. Combine this with very strong immigration numbers, a record low in unemployment and extreme rental accommodation shortages; we have reason to be hopeful.

In times gone by, when the pundits spoke of bleak times, we would tell ourselves, “… things are going to be okay. Yes, the economy is stuffed but we’re doing better than the rest.” And then, a year later, we’d have to admit our failings. We had dropped backwards, just like the rest. Arguably, we did better than the others? At least that’s what we would tell ourselves.

“… things are going to be okay. Yes, the economy is stuffed but we’re doing better than the rest.”

So, here we are again. At the precipice. And, once more, we’re feeling ok. A bigger network, debt under control, an operating business focused on the right things. Maybe the economists have got it wrong? Maybe.

In June, Oxford Economics summed up the misery in the following way: “New home sale leads, dwelling approvals, and home construction loans have deteriorated at a faster pace than anticipated through 2023, setting the scene for a deep residential downturn. Commencements are expected to fall 20% to 167,400 dwellings in FY2023. A further step down is forecast for FY2024 to 146,800 dwellings, with activity holding flat at this level in FY2025 … ” Horrific!

Shouldn’t strong employment numbers soften any downturn?

According to Michelle Bullock, deputy governor of the Reserve Bank, in a speech to the Ai Group on 20 June, the number of Australians in work has increased by more than 1.1 million since late 2021 and the level of employment is almost 8 per cent above its pre-pandemic level. She commented, almost all of the gains in employment since the start of the pandemic have been full-time jobs. And, importantly, strong demand for labour has enabled many previously part-time employees to move into full-time work. This has pushed the underemployment rate – the proportion of people with jobs but seeking more hours – down to its lowest level since 2008.

“…the number of Australians in work has increased by more than 1.1 million since late 2021 and the level of employment is almost 8 per cent above its pre-pandemic level…This has pushed the underemployment rate – the proportion of people with jobs but seeking more hours – down to its lowest level since 2008.”

To counter our upbeat deputy governor, some economists advocate the need for thousands of Australians to be pushed into unemployment, for the good of the country. They say, a greater volume of unemployed people function as an inflation-management tool. The theory goes, with fewer people working there’ll be fewer people with money to spend, thus dampening demand. And, if there’s more competition for jobs, workers will lose their bargaining power, which, in turn, assists in bringing inflation under control. Or something like that.

Even our deputy governor admitted Australia’s unemployment rate would need to rise to 4.5 per cent to tame inflation. A 0.9 per cent rise in the unemployment rate would equate to a loss of 140,000 Australian jobs. Interest rates are being lifted to kill inflation and an increase in unemployment is a key part of the strategy.

“Even our deputy governor admitted Australia’s unemployment rate would need to rise to 4.5 per cent to tame inflation.”

I wonder, will any of those advocating such a scenario be willing to sacrifice their own job? Will they volunteer their children? It’s unlikely. Unemployment is for other people.

Rather than speculate on what the media is or isn’t reporting, I can share what we are seeing from a Bowens perspective. Sales numbers for the Feb-June period have been consistent and strong. We are spending a lot of time working to lift customer credit limits, rather than pulling back. For existing stores, we have not added or reduced the number of people we employ. When there has been a need to replace a team member, recruitment has been exceedingly easier than it was a year ago.

“For existing stores, we have not added or reduced the number of people we employ. When there has been a need to replace a team member, recruitment has been exceedingly easier than it was a year ago.”

For Bowens’ volume builders, there is no doubt those specialising in the second, third and fourth home markets, as well as the knockdown and rebuild segment, are doing better than the businesses solely focussed on greenfield, first home builds.

For the majority of Bowens’ customers, the small to medium sized residential builders, positivity continues to prevail over pessimism. While some are slowing, the majority are talking up the work they have in the system and future opportunities. Only a small element of what we are seeing fits with the narrative of the press and industry bodies (for now, I’ve sworn off HIA presentations, they have begun to feel like a funeral).

I am a big fan of optimism; however, two undeniable economic realities have emerged. The cost of building has increased appreciably, while an individual’s capacity to borrow has reduced. A poisonous mix. The long-term fundamentals are strong, given high immigration and low residential vacancies, yet there is little doubt the industry will need to scrap hard in the short-term.

“The cost of building has increased appreciably, while an individual’s capacity to borrow has reduced.”

Let’s hope we can find a way. I am all-in on Victoria’s residential building market and, clearly, I will not make it as a farmer.