Household Spending

<html><body>
GUEST OBSERVER
The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.6 points (1.4 percent) to 116.4 in the week to March 13 –the highest reading since November 2015. 
Confidence is up 5.1 percent over the year and above the average of 111.4 since 2014.
The estimate of family finances over the next year was up from +28 to +35 – the highest reading since January 2010.
<a href="/images/2016/03/15/Screen%20Shot%202016-03-15%20at%204.55.08%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/03/15/Screen%20Shot%202016-03-15%20at%204.55.08%20PM.png" alt="">
New vehicle sales: New vehicle sales fell by 0.1 percent in seasonally adjusted terms in February to be up by 5.1 percent on the year. Sales of SUVs (418,691) hit record highs in annual terms and accounted for a record 45.1 percent of combined passenger car and SUV sales in the year to February.
Reserve Bank Board in wait and see mode: “Over the period ahead, new information should allow the Board to assess whether the improvement in labour market conditions was continuing and whether the recent financial turbulence presaged weaker global and domestic demand. Members noted that continued low inflation would provide scope to ease monetary policy further, should that be appropriate to lend support to demand”.
The lending and consumer confidence figures have implications for finance providers, retailers, and companies dependent on consumer and business spending. The RBA Board minutes provides insights on the interest rate outlook.
What does it all mean?
The Aussie dollar is holding near US75-76 cents; job security is strong; interest rates are stable; and petrol prices are low. So what’s not to like? Sure the sharemarket has been volatile, but Aussie consumers seem resigned to the fact that is a “normal” situation. And they are looking through the volatility, realising that our economy, and more importantly their finances are in good shape.
The good news for retailers is that consumers are seemingly looking forward to the next year with a healthy level of optimism. The estimate of family finances over the next 12 months has lifted to the highest levels since January 2010 – essentially at the height of the commodity boom. In addition consumers continue to believe it is a good time to buy a car, fridge, washing machine or television. Certainly retailers don’t seem to be in a rush to lift prices, so affordability is good.
It may be that the recent long weekend holiday in a number of states and territories as well as the upcoming Easter long weekend may have artificially boosted the level of euphoria amongst households. However the fundamentals are still sound. No doubt the upbeat economic data over the last few weeks coupled with a stronger Australian dollar is a key factor in supporting sentiment.
There were no surprises in the Reserve Bank Board minutes. The decision to keep interest rates on hold in early March was accompanied by virtually a carbon copy of the statement from the prior month’s RBA Board meeting. And the minutes are essentially singing from the same hymn sheet.
The Reserve Bank minutes make it clear that the focus is likely to be on more timely data over the next couple of months, to gauge how the economy is tracking.
<a href="/images/2016/03/15/Screen%20Shot%202016-03-15%20at%204.57.35%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/03/15/Screen%20Shot%202016-03-15%20at%204.57.35%20PM.png" alt="">
There was no real mention of the Australian dollar. However given that the currency has remained persistently high in the last couple of weeks it may be a topic of conversation in upcoming speeches by Reserve Bank officials.
The data on new vehicle sales merely confirms the industry estimates made by the Federal Chamber of Automotive Industries earlier in the month. The key message is that record car affordability, low interest rates and a stronger job market are serving to drive vehicle sales.
Of note, sports utility vehicles (or four-wheel drive vehicles) remain the ‘new black’. While sales of ‘ordinary’ passenger cars fell by almost 7 percent in February compared with a year ago, SUVs lifted by almost 11 percent over the year. In fact over 418,000 SUVs were sold over the past year – a record high. 
One in three new vehicles sold in Australia is a SUV. And almost 45 per cent of combined SUV and passenger cars sold are SUVs.
What do the figures show?
Consumer confidence
The weekly ANZ/Roy Morgan consumer confidence rating  rose by 1.6 points (1.4 percent) to 116.4 in the week to March 13. Confidence is up 5.1 percent over the year and above the average of 111.4 since 2014. 
Three of the five components of the index rose in the latest week:
The estimate of family finances compared with a year ago was up from +6 to +10;
The estimate of family finances over the next year was up from +28 to +35;
Economic conditions over the next 12 months was down from -1 to -2;
Economic conditions over the next 5 years was down from +10 to +7;
The measure of whether it was a good time to buy a major household item was up  from +31 points to +32 points.
New car sales:
According to the Australian Bureau of Statistics (ABS) new vehicle sales fell by 0.1 percent in seasonally adjusted terms in February after rising by 0.4 percent in January. Passenger car sales rose by 0.8 percent, while sales of sports utility vehicles fell by 0.6 percent and sales of “other” vehicles (includes utilities, panel vans, cab chassis, goods carrying vans, rigid trucks, prime movers, non-freight carrying trucks, and buses) fell by 1.1 percent.
New vehicles sales were up by 5.1 percent over the year . Passenger car sales in January were down 6.8 percent over the year while SUVs sales were up by 10.8 percent and “other vehicles” were up by 8.4 percent.
In rolling annual terms, a record 1,163,684 new vehicles were sold over the year to February. Sales of SUVs (418,691) hit record highs in annual terms, while annual sales of other vehicles stood at a 2-year high of 235,112.
Sales of passenger vehicles stood at a 15ó-year low of 509,881.
SUVs accounted for a record 45.1 percent  of combined passenger car and SUV sales in the year to February.
Reserve Bank Board minutes
The key quotes from the Board minutes:
International conditions: “Growth in Australia's major trading partners had remained a little below average in year-ended terms and commodity prices were still significantly lower than they had been a year earlier.
Meanwhile, global financial markets had been volatile in the aftermath of the Bank of Japan's decision to implement negative interest rates and generally there appeared to be more uncertainty about the direction and potency of monetary policy in the major jurisdictions. However, given the usual lags in the data, it was still too early to assess whether the bout of financial market volatility since the turn of the year foreshadowed or would lead to a weakening in global economic conditions.”
Job market: “Leading indicators of employment had increased further and were consistent with employment growth in the months ahead. Wage growth had remained at quite low levels.”
Housing:  “Conditions in the established housing market had eased somewhat since September 2015, in part reflecting the effect of supervisory measures implemented in that year. In addition, after rising for some time, the growth in aggregate housing credit had stabilised over the past six months or so, with a significant easing in growth in lending to investors.”
Monetary policy:  “Members judged that there were reasonable prospects for continued growth in the economy and that it was appropriate to leave the cash rate unchanged at an accommodative setting. Over the period ahead, new information should allow the Board to assess whether the improvement in labour market conditions was continuing and whether the recent financial turbulence presaged weaker global and domestic demand. Members noted that continued low inflation would provide scope to ease monetary policy further, should that be appropriate to lend support to demand.”
What is the importance of the economic data?
The ANZ/Roy Morgan weekly survey of consumer confidence  closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
The Australian Bureau of Statistics  provides seasonally adjusted and trend estimates of industry data. The Federal Chamber of Automotive Industries  releases estimates of car sales  on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto &amp; components companies.
The Reserve Bank releases minutes of its monthly Board meeting  a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
What are the implications for interest rates and investors?
CommSec doesn’t expect any change in the cash rate for the foreseeable future. Underlying inflation remains at the bottom of the 2-3 percent target band but should lift over 2016.
<a href="/images/2016/03/15/Screen%20Shot%202016-03-15%20at%203.46.28%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/03/15/Screen%20Shot%202016-03-15%20at%203.46.28%20PM.png" alt="">
The recent lift in the Australian dollar has already garnered the interest of the Reserve Bank and may dominate discussion at the next Board meeting. Last week Deputy Governor Phillip Lowe said the Reserve Bank would prefer to see the currency lower.
If the Reserve Bank was to cut rates it would be because of global factors – certainly not domestic considerations.
Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>
</body></html>

jchancellor-FAypfDUnLy

Outlook for family finances at six year highs: Savanth Sebastian

<html><body>
<img src="https://counter.theconversation.edu.au/content/68664/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Higher property prices are not only associated with higher income inequality but also with a higher inequality in household spending, our research shows.
We examined three decades of data from 1982 to 2012 in Iran, where income inequality is the highest in the Middle East.
We found that a 1 percent increase in housing costs increases income inequality by 0.125 percent. This is taking into account other important economic, political and social determinants of inequality (such as income per capita, inflation, government spending and the quality of political institutions). We also found that inequality of spending increases by 0.248 percent when housing costs are 1 percent higher.
Although our findings are based on data from Iran, this a common theme for much of the developing and developed world. For example, a similar study in Singapore shows a significant correlation between increasing private property prices and increasing income inequality. 
Researchers in the UK also argue that increases in housing prices change the distribution of welfare towards home owners, and away from non-homeowners. Another study showed housing is driving a long-term rise in income in seven large developed economies (the United States, Japan, Germany, France, the UK, Italy, and Canada). 
Income inequality is among the top challenges for policy makers globally. In a recent survey of 1,767 leaders from academia, business, government and non-profits, The World Economic Forum’s Global Agenda Council found increasing income inequality to be top global concern in 2015.
Income inequality has several harmful consequences for societies. For example, a World Bank study shows that income inequality has a significant negative effect on GDP in the long-run. Inequality has also been identified as one of the main drivers of social unrest in the Arab World, in the recent British vote to leave the European Union and in the US Presidential election. 
<h2>Why housing costs and inequality are linked</h2>
There are a number of reasons why increases in house prices and inaccessibility of housing can lead to increased income inequality. 
Property is a very important asset for households that brings many income advantages. Some of these include a return on investment from increases in house prices and the savings households make when they don’t have to pay rent. So unaffordable housing restricts low-income households from accessing these financial benefits. 
There are also intergenerational effects of housing on inequality. If affordable housing decreases, wealthy families and lower income families become more segregated. This leads to greater differences in education for the children of poor and rich families.
For example, research showsparents can make it more likely for their children to grow up to be high income earning adults through the education and the peers that their children have. Those who have a better quality schooling are more likely to earn more as adults.
Because of this research also indicates wealthy parents have an incentive to cluster into neighbourhoods with other wealthy families, to decrease the cost of providing high quality education for their children, and for other social reasons.
If there is less affordable housing it makes it easier for this segregation to occur, increasing inequality. For example, there is a significant gap between the quality of education between northern parts of Tehran (home to Tehran’s most expensive houses) and southern parts of Tehran. 
Rising house prices also stop the migration of unskilled labour to more productive regions, this in turn slows down a mixing of people with different incomes in these areas. This mixing can reduce income inequality, as poorer geographic regions experience faster economic growth. 
Rising house prices may also lead to a concentration of wealth, this means those who have wealth also have greater returns on it. 
In terms of tackling this type of inequality, governments should expand access to affordable housing finance to lower income families. Policymakers also need to redefine capital gains tax on investment properties to reduce the income differences between landlords and tenants. 
Finally, taxation that better caters to low income first-time home buyers may allow lower income households access not only to more stable housing, but also to the longer term financial benefits associated with owning their own homes.
Hassan F. Gholipour is lecturer in economics, Swinburne University of Technology and can be contacted <a href="https://theconversation.com/profiles/hassan-f-gholipour-309444" target="_blank">here</a>.
Jeremy Nguyen is lecturer in economics, Swinburne University of Technology and can be contacted <a href="https://theconversation.com/profiles/jeremy-nguyen-316390" target="_blank">here</a>.
Mohammad Reza Farzanegan is professor of economics of the Middle East, University of Marburg and can be contacted <a href="https://theconversation.com/profiles/mohammad-reza-farzanegan-316293" target="_blank">here</a>.
All are authors for The Conversation.
</body></html>

Higher property prices linked to income inequality: study

<html><body>
GUEST OBSERVER
The weekly ANZ/Roy Morgan consumer confidence rating fell by just 0.4 points (0.3 percent) to 116.0 in the week to March 20.
 Confidence is up 4.1 percent over the year and above the average index value of 112 since 2014.
Higher home prices: The Bureau of Statistics reports that Australian home prices rose by 0.2 percent in the December quarter to stand 8.7 percent higher over the year.
Fewer people in homes: The estimated number of people per home continues to fall, dropping from 2.491 to 2.488 in the December quarter.
The consumer confidence figures have implications for finance providers, retailers, and companies dependent on consumer and business spending.
<a href="/images/2016/03/23/Screen%20Shot%202016-03-22%20at%204.56.43%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/03/23/Screen%20Shot%202016-03-22%20at%204.56.43%20PM.png" alt="">
What does it all mean?
Headed into a period dominated by the Federal Budget and a possible double-dissolution election, Aussie consumers are in good shape. All the key components of the confidence survey are above short-term averages.
And indeed the outlook for family finances over the coming year – a lead indicator of spending – remains positive.
The key question is how confidence evolves over the next few weeks. The Aussie dollar is near US76 cents, interest rates are at generational lows, trend unemployment is at 26-months lows and petrol prices are just above the lowest levels recorded in six years. So there are few reasons to be negative.
The Bureau of Statistics has released data on home prices for the December quarter. However the better measures on home prices are those produced by CoreLogic RP Data and it’s worth noting that March quarter data will be released in just over a week, on April 1.
From 2011 to early 2014, the average number of people in Aussie homes rose – a rare development over the past century in Australia. But with more homes being built in recent years and rental conditions easing, more Gen Y (or Millennials) have been moving out of home. As a result the number of people per home is again shrinking, serving to soak up the increased supply of new homes.
What do the figures show?
Consumer confidence
The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.4 points (0.3 percent) to 116.0 in the week to March 20. Confidence is up 4.1 percent over the year and above the average of 112 since 2014. Three of the five components of the index rose in the latest week:
The estimate of family finances compared with a year ago was up from +10 to +11;
The estimate of family finances over the next year was down from +35 to +27;
Economic conditions over the next 12 months was up from -2 to +2;
Economic conditions over the next 5 years was up  from +7 to +9;
The measure of whether it was a good time to buy a major household item was down  from +32 points to +31 points.
Residential property prices
The Bureau of Statistics (ABS) has released its Residential Property Price indexes.
“The price index for residential properties for the weighted average of the eight capital cities rose 0.2 percent in the December quarter 2015. The index rose 8.7 per cent through the year to the December quarter 2015.
The capital city residential property price indexes rose in Melbourne (+1.6 percent), Brisbane (+1.6 percent), Adelaide (+0.9 percent), Canberra (+2.8 percent), Perth (+0.5 percent) and Hobart (+2.5 percent) and fell in Sydney (-1.6 percent) and Darwin (-1.8 percent).
Annually, residential property prices rose in Sydney (+13.9 percent), Melbourne (+9.6 percent), Canberra (+6.0 percent), Brisbane (+4.2 percent), Hobart (+3.5 percent) and Adelaide (+3.3 percent) and fell in Darwin (-3.2 percent) and Perth (-2.9 percent).
The ABS notes that as at December 2015 there were 9.62 million homes in Australia. On average there were 2.488 people per home, down from 2.491 in the September quarter.
“The total value of residential dwellings in Australia was $5,885,967.2m at the end of December quarter 2015, rising $31,557.1m over the quarter.
The mean price of residential dwellings rose $800 to $612,100 and the number of residential dwellings rose by 38,700 to 9,615,800 in the December quarter 2015.”
What is the importance of the economic data?
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
The Australian Bureau of Statistics (ABS)  provides quarterly data on residential prices. The figures provide further perspectives on the state of the housing purchase sector.
<a href="/images/2016/03/23/Screen%20Shot%202016-03-22%20at%204.58.09%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/03/23/Screen%20Shot%202016-03-22%20at%204.58.09%20PM.png" alt="">
What are the implications for interest rates and investors?
CommSec doesn’t expect any change in the cash rate for the foreseeable future. Underlying inflation remains at the bottom of the 2-3 percent target band but should lift over 2016.
The Reserve Bank believes that the aspects of the consumer confidence surveys dealing with family finances are the most important. The good news for retailers is that Aussie consumers believe finances are better than a year ago and likely to remain in good shape.
The fall in the number of people per home most probably reflects lower growth in rents and the lift in homebuilding, especially the shift to apartment living. But the drop in the number of people per home is one factor serving to alleviate concerns of a potential oversupply developing of new homes.
Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
</body></html>

Contented consumers; Fewer people in homes: CommSec's Craig James

<html><body><div class="page" title="Page 1">
<div class="section">
<div class="layoutArea">
<div class="column">GUEST OBSERVER</div>
<div class="column"> </div>
<div class="column">Consumer sentiment predictably eased last week from 10-month highs. No doubt the terrorist attacks in Paris added a modest dampener to the latest result. </div>
<div class="column"> </div>
<div class="column">Overall confidence remains healthy consumers are still more upbeat than a year ago and sentiment is above the short-term average.</div>
<div class="column">
 Interestingly the outlook for family finances over the next year lifted in the past week and is holding just shy of the 20-month highs reached in mid-October. 
</div>
<div class="column"> </div>
<div class="column">The upbeat employment data last week would have encouraged households when it comes to job security. Also, the Reserve Bank believes that the question on the outlook for family finances is most instructive and the latest result is still well above average levels.</div>
<div class="column">
 The Reserve Bank Board minutes make for interesting reading. Although there was no significant surprise in views. Board Members were slightly more upbeat on the prospects for the Australian economy and continued to reiterate firmer growth over the next two years. No doubt the weaker Australian dollar is supporting a rebalancing and helping to offset the weakness in mining investment. Interestingly the more upbeat view came ahead of the stronger employment numbers last week.
</div>
<div class="column"> </div>
<div class="column"><a href="/images/2015/11/17/Screen%20Shot%202015-11-17%20at%203.52.04%20PM.png" target="_blank">Click to enlarge</a></div>
<div class="column">
<img src="/images/2015/11/17/Screen%20Shot%202015-11-17%20at%203.52.04%20PM.png" alt=""> If the anticipated lift in activity does not take place, then this could prompt the Board to assess the need for more stimulus. And clearly the low inflation result has left the door open for a further rate cut.
What do the figures show?
Consumer sentiment
The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.7 points (0.6%) to 115.9 in the week to November 15 Confidence is up 2.6% over the year and above the average of 111.4 since 2014.
</div>
<div class="column">
 Just one of the five components of the index rose in the latest week:
</div>
<div class="column"> </div>
<div class="column">
The estimate of family finances compared with a year ago was down from +11 to +10; 
</div>
<div class="column">
The estimate of family finances over the next year was up from +25 to +29;
</div>
<div class="column">
Economic conditions over the next 12 months was down from +5 to +1;
</div>
<div class="column">
Economic conditions over the next 5 years was down from +14 to +12;
</div>
<div class="column">
The measure of whether it was a good time to buy a major household item was unchanged at +28 points.
</div>
<div class="column"> </div>
<div class="column">The key quotes from the Board minutes:</div>
<div class="column"> </div>
<div class="column">
Stronger growth expected: “Members noted that the forecasts for GDP growth were not materially different from those presented three months earlier. Growth was expected to be between 2–3% over the year to June 2016, before rising to 23⁄4–33⁄4 % over the year to June 2017.”
</div>
<div class="column"> </div>
<div class="column">
Job market: “Employment growth had been stronger than expected over 2015 and this had been accompanied by a noticeable increase in the participation rate. Employment growth had been concentrated in the household and business services sectors. Measures of job vacancies and advertisements pointed to continued growth in employment in the months ahead.”
</div>
<div class="column"> </div>
<div class="column">
Bank lending: “The major banks in Australia continued to raise equity to meet the changes to minimum capital requirements announced by APRA around mid-year, which would take effect from July 2016. Equity as a source of funding for banks had increased by around 1⁄2 percentage point to 8 per cent of total funding. The largest banks had increased standard variable housing rates in October by 15–20 basis points. Members noted that widening margins on mortgage lending were in part offsetting lower margins on lending to larger businesses, for which lending rates had continued to decline in the face of strong competition. Deposit rates had been lowered and funding costs more generally had declined.”
</div>
<div class="column"> </div>
<div class="column">
Inflation: “However, members recognised that there was still evidence of spare capacity, including the relatively high unemployment rate, low wage growth and the lower-than-expected inflation outcome in the September quarter. The gradual nature of the pick-up in domestic growth suggested that spare capacity would persist for some time. Inflation was forecast to be consistent with the target over the next one to two years, but somewhat lower than earlier expected.”
</div>
<div class="column"> </div>
<div class="column">
Outlook: “Taking the above information into consideration, members decided that leaving the cash rate unchanged at this meeting was appropriate. They judged that the inflation outlook may afford some scope for further easing of monetary policy, should that be appropriate to lend support to demand. The Board would continue to assess the outlook, and whether the current stance of policy would most effectively foster sustainable growth and inflation consistent with the target”
</div>
<div class="column"> </div>
<div class="column">What is the importance of the economic data?</div>
<div class="column"> </div>
<div class="column">
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
</div>
<div class="column"> </div>
<div class="column">
The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
</div>
<div class="column"> </div>
<div class="column">What are the implications for interest rates and investors?</div>
<div class="column"> </div>
<div class="column">CommSec expects no change to interest rate settings in coming months. </div>
<div class="column">
<div class="page" title="Page 2">
<div class="layoutArea">
<div class="column">
<a href="/images/2015/11/17/Screen%20Shot%202015-11-17%20at%203.57.34%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/11/17/Screen%20Shot%202015-11-17%20at%203.57.34%20PM.png" alt="">
</div>
</div>
</div>
</div>
</div>
Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>
</div>
</div></body></html>

Consumers still confident, RBA optimistic: CommSec's Savanth Sebastian

<html><body>
EXPERT OBSERVER
Large inflows of relatively young migrants have supported population growth and increased the share of the population aged 25–34 over the 2010s (Graph 2).[1] Despite this, the population has continued to grow older on average because the large baby boomer generation have begun to move into the 65 and over category and because of the ongoing trend increase in life expectancy. By contrast, people aged 35–54 have made only a very modest contribution to growth in the population, unlike in prior decades when the baby boomers moved through this age group. As a result, the number of people at retirement age per 100 working-age people (those aged between 15 and 64) has risen from around 20 to 25 over the past decade and is expected to rise further over the next decade.
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-02.svg" alt="Graph 2: Changes in Population Age Segments" width="620" height="539">
Alongside these demographic developments over the past decade, there have been noticeable changes in key economic indicators for the household sector. Disposable income grew at a reasonably strong pace over the 1990s and 2000s, but income growth has been subdued over the 2010s (Graph 3). Growth in household consumption has also slowed. The saving ratio increased noticeably starting from the mid 2000s, but has declined more recently. A range of structural and cyclical factors have contributed to these trends. These include: the global financial crisis; the mining boom and its unwinding; higher levels of household debt; weakness in non-labour income; growth in household income tax revenue; and the recent downturn in the housing market.[2] Considering the contribution demographics have made to these trends, alongside these other factors, can help us further understand developments to date and how they might evolve in the future.
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-03.svg" alt="Graph 3: Household Consumption and Income" width="620" height="500">
This article uses an Australian Bureau of Statistics (ABS) dataset that combines household-level information from the Household Expenditure Survey (HES) and the Survey of Income and Housing (SIH) with the national accounts to explore what effect demographic changes are likely to have had on household consumption and income over recent decades.[3] In this dataset, the relevant household information, such as age, is grouped according to a designated ‘household reference person’.[4] This dataset is broadly representative of the Australian household sector and includes persons living in non-private dwellings (such as nursing homes) and persons in very remote communities, who are often out-of-scope in micro datasets.[5]Consistent with the changes in the aggregate population, the share of households with reference persons' aged 55 and above in this dataset has increased from around one-third in 2004 to nearly half in 2018. The descriptive statistics offered by these data do not allow demographic effects to be isolated from other variations between households that may have been correlated with age. Nonetheless, they allow an examination of the average differences between households of different ages and how those differences contribute to the aggregate household sector and economy.
Income and consumption tend to decline with age …
Some portion of the slowing in consumption growth over the past decade is likely to be due to the ageing of the population. This is because the distribution of average household consumption by age in Australia follows a hump-shaped pattern: spending generally increases through the working life of a household, rising noticeably for households aged 35–54 in the stage of their life where many households support children and then declines once they retire. The decline in consumption is particularly pronounced for households aged 65 and over (Graph 4).[6] The reasons for a reduction in average spending for the 65 and above category would vary by household, but some likely explanations include a reduction in income as people enter retirement (discussed further below), lower weekly expenses (such as transport and eating out) after exit from the workforce, no longer needing to support children and actual or perceived inadequate savings for retirement.[7] The decline in the consumption of older households is not as large when incorporating social transfers provided by the government (discussed further below).
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-04.svg" alt="Graph 4: Real Household Consumption" width="620" height="519">
The ageing of the population is also likely to have made some contribution to the slowing in income growth over the past decade. Similar to the distribution of consumption by age, household income generally increases through the working life of a household and then declines as they approach retirement (Graph 5). Households aged 65 and above typically have lower levels of income than those aged 25–54, and around 40 per cent of households 65 and over are in the lowest income quintile.[8] However, these older households are typically wealthier; only 25 per cent are also in the lowest two wealth quintiles.
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-05.svg" alt="Graph 5: Real Household Income" width="620" height="536">
However, stronger income growth over the past decade has supported higher consumption growth for older households
The impact of the growing number of older households on aggregate consumption has been partly mitigated by a shift in the shape of the lifetime consumption distribution over the past decade. Average consumption per household aged 55 years and above has grown nearly twice as fast as the average of other households (Graph 6). In 2017/18, households aged 55–64 consumed more on average ($123,000) than those aged 35–44 ($111,000), although less than those aged 45–55 ($128,000). Stronger consumption growth for older households has partly reflected stronger growth in their incomes, compared with other age groups. Changes in household composition (such as children staying at home for longer or increased life expectancy) may be another contributing factor to consumption growth per household.
By contrast, the youngest households (those aged 24 and below) on average saw no growth at all in their consumption and a decline in their real income in the six years following the global financial crisis. The smaller share of the population comprised of these households, relative to prior decades, means that the effect on aggregate consumption has been smaller than it otherwise would have been.
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-06.svg" alt="Graph 6: Real Household Consumption" width="620" height="505">
Aggregate growth in household disposable income has slowed noticeably over the past decade and has been lower than consumption growth for most of the past five years. But, as noted above, income growth across the age distribution has varied. Income growth was stronger for older households than for younger ones (Graph 7).[9] For example, households aged 15–24 had more disposable income than households aged 65 and over in 2003/04, but in 2017/18 earned about the same, and they still had significantly less wealth. As in the case of consumption, stronger growth in older households' incomes has reduced the effect of the ageing population on aggregate income.
For households aged 55–64 years, a key driver of stronger growth in overall income relative to other households has been strong growth in labour income. This has been supported by increased participation in the labour force, mainly by women. The female participation rate for those aged 55–64 years has increased from around 30 per cent in 1999 to a little more than 60 per cent in 2020.[10] For households aged 65 and above, growth in income over the past 15 years has also been supported by strong growth in non-labour sources of income such as financial income, rental income and social assistance income.[11]
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-07.svg" alt="Graph 7: Household Real Income Growth by Age" width="620" height="577">
Financial income has grown more strongly than any other source of household income over the past 15 years. All age groups have benefited, but older households benefited the most because they hold more financial wealth, on average. Total financial returns for households over this period would be even larger if capital gains were included, but financial income in the national accounts excludes capital gains. This understates the total financial returns of households, particularly for older households because they receive the largest share of their income from financial wealth.
Older households save less of their current income than younger households
Households across most age groups increased their rate of saving in the mid 2000s, likely driven by precautionary motives, lower expectations for future income growth and declines in wealth.[12] Over the following six years, households aged 35–44 years increased their rate of saving further while the rate of saving for older and younger households was relatively unchanged (Graph 8). While older households generally save less than younger households, older households still had positive savings over the past 15 years, on average.
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-08.svg" alt="Graph 8: Household Saving Ratio" width="620" height="516">
Since 2015/16, the aggregate saving rate in Australia has declined, as disposable income growth has been weaker than consumption growth. While distributional data on saving are not available for the past couple of years, historical experience suggests that demographics are likely to have contributed in some part to the further decline in the saving rate since 2016, as the share of older households, who save less, has increased. The relative increase in the saving rates of younger households over this time has mitigated this effect on the aggregate saving rate. A simple scenario that uses 2015/16 saving per household and population shares from 2003/04 suggests that in the absence of changes in demographics over this time, the saving rate would have been 1 percentage point higher in 2015/16. As the population continues to age this may weigh further on the saving rate.
Superannuation has also supported consumption by older households
Superannuation has played an important role in households' choices for smoothing consumption as they approach and enter retirement, giving them the option of drawing down their superannuation to fund spending above their income. The drawdown of super has supported older households to consume more on average (Graph 9).
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-09.svg" alt="Graph 9: Household Finances" width="620" height="593">
Growth in household consumption has been supported by strong growth in asset prices, particularly for older households
Past research has identified a relationship between household wealth and consumption.[13] Net wealth has increased for all age groups, although the largest gains in dollar terms have accrued to older households (Graph 10). The average Australian household's wealth – under the definitions in the national accounts – increased in nominal terms from around $500,000 in 2004 to close to $1.1 million in 2015/16. The average wealth of households aged 15–34 increased by around $90,000 over this period, while for households aged 55 and above it increased by $630,000. Older households have accumulated considerably more wealth than households of the same age in the past, consistent with the increase in their consumption.[14]
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-10.svg" alt="Graph 10: Net Wealth by Age" width="620" height="439">
Housing wealth increased strongly from 2003/04 to 2017/18, but debt owed by households grew even more strongly. While households aged 65 and above hold the least debt on average, these households (and those aged 55–64) have also seen a trend increase in the average housing debt per household relative to households of their age in the past, meaning that older households are now approaching or in retirement with more debt, on average (Graph 11).
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-11.svg" alt="Graph 11: Real Household Debt" width="620" height="552">
The growth in housing wealth and debt in part reflects increased ownership of investment properties by older households. For older households, housing debt is roughly evenly split between owner-occupied and other properties, while for households aged 54 and below housing debt is largely for the property they live in. Data from the Australian Taxation Office indicate that increased ownership of investment properties over the past two decades has been driven by those aged 50 and above (Graph 12).
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-12.svg" alt="Graph 12: Residential Rental Properties" width="620" height="539">
Social welfare has also supported consumption by older households
Households across all age groups are supported by sizeable social transfers from the state. Consideration of these public transfers gives a more complete picture of the set of resources available to households and helps explain the relatively resilient private consumption of older households because private income and consumption has been supplemented by support from the state.
Social assistance income provided to households aged 65 and above has increased around 30 per cent in real terms over the period 2003/04 to 2017/18 (Graph 13). Pension income has grown in excess of both the consumer price index and the wage price index since 2003, partly reflecting a number of policy changes.[15] Social assistance income declined a little in 2017/18 for older households, on average. This seems to reflect, at least in part, a larger share of part pensions.
Growth in nominal social assistance income has been subdued for all other households since 2003/04; in real terms, it has declined a little. The typical household aged 64 and below receives no social assistance income from the state. While unemployment benefits did increase a little towards the end of the mining boom, these only account for 15 per cent of social assistance.
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-13.svg" alt="Graph 13: Social Assistance Income by Age" width="620" height="556">
Once other transfers, such as child care and education benefits (for example, subsidies for education), are included, the social welfare benefits are a little more evenly distributed across age groups in nominal dollar terms (Graph 14). These ‘transfers in kind’ also include aged care and benefits received through the National Disability Insurance Scheme. Social transfers in kind are captured by measures of government spending and are not included in household consumption growth. Total spending on these transfers has grown significantly over the past 15 years, which has been an important driver of growth in public consumption and economic activity.
<div> </div>
<img src="https://www.rba.gov.au/publications/bulletin/2020/mar/images/graph-0320-8-14.svg" alt="Graph 14: Social Welfare Benefits by Age" width="620" height="497">
Conclusions and considerations for the outlook
Australia, as in many countries, is experiencing large demographic shifts. Some portion of the slowing in aggregate consumption and household disposable income growth over the past decade is likely because of demographic changes as more households have moved into a stage of their lives where they earnt and spent less, on average. These effects have been smaller than what previous patterns of household spending would suggest because older households are spending more than in the past. This expenditure has been supported by relatively strong growth in income, large increases in wealth and withdrawals from superannuation.
Over the coming decade, a further strong increase in the share of households aged 65 and above is expected. Further impacts on consumption and income are likely, although these are likely to happen over a number of years. The increase in young overseas migrants over the past decade should support the share of the population that are of working age over the coming decade. This has made Australia relatively well placed, compared with many other advanced economies, to adjust to the effects of an ageing population.
TOMAS COKIS AND KATE MCLOUGHLIN are staff at the RBA
</body></html>

j.ballantyne1990-6AQqhLzZaK

Latest trends in housing finances and spending: RBA discussion paper

soliver-smf6LQXgW9

Household spending was the biggest drag on the economy: Shane Oliver

<html><body>
<div class="page" title="Page 1">
GUEST OBSERVER
The six month annualised growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, fell from 1.11 percent in March to 0.92 percent in April. 
This marks the ninth consecutive month where the growth rate in the Index is at or above trend. That followed a period of seventeen consecutive months where the growth rate had been below trend. That sustained period of below trend growth in the series had been pointing to the weakness we saw in the economy in the September quarter (although no lead indicator could have prepared us for a negative growth print).
The resumption of positive growth in the Index in August last year gave us some comfort that the bounce back in growth in the December quarter to 1.1% could have been anticipated.
While the strong bounce back in the December quarter was partly statistical in response to the negative quarter in September the ongoing positive signal from the Index is consistent with solid growth through most of 2017.
In his statement following the Reserve Bank Board meeting on May 2 the Governor noted: “Growth is expected to increase gradually over the next couple of years to a little above 3 percent”.
Recall that it is generally accepted by the market and in official circles that trend growth in the Australian economy is around 2.75 percent so a confident prediction of “a little above 3 percent” would be consistent with the Index remaining clearly positive for an extended period.
<a href="https://www.propertyobserver.com.au/images/2017/05/24/Screen%20Shot%202017-05-24%20at%2010.44.42%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/05/24/Screen%20Shot%202017-05-24%20at%2010.44.42%20AM.png" alt="">
The Bank’s current spot forecasts for growth are: 3 percent in 2017; 3.25 percent in 2018 and 2019 (to June).
Westpac concurs with the Bank’s forecast of 3 percent growth through 2017. That is above trend and consistent with the positive leads from the Index over the last nine months.
However we do have concerns for growth beyond 2017. Prospects for 2018 look discouraging. Housing construction is likely to be contracting through 2018 while export growth will slow and the terms of trade are likely to be falling, slowing nominal income growth.
Prospects for an offsetting boost from household spending and business investment are not encouraging given the ongoing negative feedback loop from weak labour incomes to consumption and sales.
The Leading Index growth rate has lifted over the last six months from 0.25 percent in November to 0.92 percent in April. Until recently the key drivers of that improvement had been global factors: rising commodity prices and the steepening of the yield curve.
In April both of these components slowed with the change in the 6 month contribution being -0.19 percentage points for commodity prices and -0.05 percentage points for the yield curve (which has recently been flattening).
However, other international factors are still supportive of the Index – US industrial production has contributed 0.33 percentage points to the increase in the Index while ASX200 has contributed 0.29 percentage points.
On the domestic front dwelling approvals have contributed 0.19 percentage points; the Westpac-MI Unemployment Expectations Index 0.11 percentage points; and Westpac-MI Consumer Sentiment Expectations Index 0.06 percentage points.
The only ‘domestic’ component dragging on the Index is “aggregate monthly hours worked” which reduced the index growth rate by 0.08 percentage points between November and April.
The Reserve Bank Board next meets on June 6. Policy is firmly on hold as the Bank assesses developments particularly in housing and labour markets.
As discussed, the Governor expects a period of sustained above trend growth over the course of 2018 and 2019.
“That view would be broadly consistent with markets which continue to expect the Reserve Bank to be raising rates next year (although the strength of this conviction does vary over time). Consistent with the Leading Index we do concur with the Bank’s forecast for 3 percent growth in 2017 but expect a slowdown next year.
Such a development would eliminate any ‘pressure’ to raise rates next year – we continue to expect rates to be on hold in 2018.  
</div>
<div class="page" title="Page 1">
<div class="page" title="Page 1">
<div class="layoutArea">
<div class="column">
BILL EVANS is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
</div>
</div>
</div>
</div>
</body></html>

bevans-rYk9SxEa4r

Leading Index eases back a little: Bill Evans

<html><body>
While a property market crash and its impact on the Australian economy is a topic of hot debate, some experts say a slump in consumer spending is a more immediate threat to the economy.
The view comes in the wake of the latest <a href="https://www.urban.com.au/news/74812-big-four-banks-defend-lending-practices-against-four-corners-claims" target="_blank">ABC Four Corners show</a> which noted that “for every $1 earned, on average, Australians have nearly $2 of debt” and it stems from a national obsession with buy property.
Household debt hit a record high of 190 per cent of yearly disposable income in the March quarter, according to the Reserve Bank.
Show presenter Sarah Ferguson said the programme would explore “what happens if Australia’s debt-fuelled housing boom comes to a crashing end”.
Two of the interviewees, Roy Palleson and Rowena Ebona, a Sydney couple on a combined income of $135,000, said they owed $1.2 million on five investment properties worth $1.5 million.
A fall in property prices would leave Roy and Rowena, and thousands of other investors, holding more in mortgage debt than they owned in property, with little or no buffer.
However, University of New South Wales economist Richard Holden said a drop in consumer spending was a more immediate concern.
“If you have more of a drop on consumer spending, you’re going to see a contraction on the business side. It flows straight into business investment and business expansion, and that has a multiplier effect,” he told The New Daily.
“They’re not going to be in the mood to give big pay rises or wage rises at all. They’re not going to be employing people and so that then compounds on the consumer side. It just goes round in a vicious circle.”
The latest GDP figures from the March quarter reveals that the share of economic growth flowing to wage earners fell to 51.5 per cent, the lowest since 1964.
Household consumption currently accounts for about 57 per cent of GDP and any drop in consumer spending from cash-poor workers would hit growth.
The economy only grew by 0.4 per cent in the March quarter.
The widely-cited consumer confidence index compiled by Roy Morgan has fallen for the past three weeks. The latest ‘confidence’ rating fell to 109.2 points on August 20, down from 118.4 on July 30.
Dr Holden also says that there are far more factors – such as state and federal stimulus – propping up house prices than those aimed at boosting consumer spending and wage growth.
“It’s been well discussed what is propping up the property side, with negative gearing and things like that,” he said.
“On the consumer side, when you’ve got high personal income tax rates and not much talk of cuts to those, that’s not going to help consumer spending. And then of course wage growth has been really low and stagnant.”
“We learned last week that wages grew in 2016-17 by just 1.9 per cent, the lowest of any financial year since at least 1997, and exactly the same speed as inflation. This meant wages are failing to outpace the cost of living.”
Wages in the private sector grew just 1.8 per cent over the fiscal year, meaning the majority of the workforce actually copped a wage cut in real terms, he said.
Meanwhile, property prices continue to be resilient in spite of regulatory measures.
Brendan Coates, a fellow at the Grattan Institute, said the bigger risk “at the moment” from the property market was a drop in household consumption.
“If households found themselves in difficulty with servicing their debts, the more likely scenario would be that they curb their spending in order to meet their obligations, to keep repaying those debts,” he was cited as saying by The New Daily.
He pointed to RBA research that found that the spending of households on variable-rate mortgages was very sensitive to changes in interest rates.
The effects would likely reverberate through the economy, especially the labour market, he said.
“If you have households reducing their spending, that slows income growth through the economy, which presents risks for unemployment,” he said.
“If households are not confident in where things are going, they won’t spend as much and that will have flow-on impacts to other sectors and other industries.”
An example of how this might hurt the economy is the recent warning from G8 Education, the Gold Coast-based childcare centre operator, that sluggish wages growth had contributed to a drop in demand for childcare, cutting into its revenue.
Even without such a consumer-led crisis, Coates said record-low wage growth and low inflation meant mortgage debt would “loom larger for much longer”, instead of being eroded away.
 
</body></html>

jonathanchancellor-7SQnKwU6yx

Anaemic consumer spending bigger threat than property crash: Experts

<html><body>
While Australian consumer sentiment has recovered in recent months, views around family finances remain a stand out weak spot. In particular, the ‘finances, last 12mths’ sub-index is down 6.1% vs a year ago and well below long run average levels.
These readings are of real concern.
This backward looking component is already known to have close links with actual spending – something the RBA has noted in the past. Westpac’s latest analysis also confirms the component contains genuine information about current finances.
The ‘finances, last 12mths’  sub-index is closely correlated with growth in labour income, disposable income (i.e. all income after tax and interest) and household net worth with correlations evident at both the national and state level.
The chart below shows how the sub-index tracks vs a combined measure of household finances.
Current readings point to significant added pressure on finances over the last 6mths – our combined per capita measure essentially stalling flat.
Aside from weak wages growth and slowing housing markets, higher mortgage rates for ‘interest only’ and investor loans and associated switching to loans with higher monthly repayments may be impacting.
While some of these drags will dissipate the wider picture suggests family finances will remain under pressure heading into 2018.
Read the full report: <a href="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/file/Australia/2017/October/WestpacRedBookOctober2017.pdf" target="_blank">Westpac Red Book October 2017</a>.
<a href="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/image/The_Red_Book/Red_Book_bites/Redbook-bite-20171023-4.jpg" target="_blank">Click to enlarge</a>
 <img src="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/image/The_Red_Book/Red_Book_bites/Redbook-bite-20171023-4.jpg" alt="">
 
</body></html>

Household Spending

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Household Spending

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News