Why weak sentiment detail around family finances is a real concern: Matthew Hassan

Why weak sentiment detail around family finances is a real concern: Matthew Hassan
Why weak sentiment detail around family finances is a real concern: Matthew Hassan

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: Westpac Red Book October 2017.

Click to enlarge

 Why weak sentiment detail around family finances is a real concern: Matthew Hassan

 

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Westpac Household Spending

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