Concern about the outlook for household spending — the largest part of the Australian economy — are intensifying following soft growth in the latest national accounts.
This chart from Macquarie Bank is unlikely to help appease those concerns.
It shows the percentage change in Australian new car sales by state from the first quarter of 2011, based on data released by VFACTS.
While the three-month moving average terms sales in New South Wales and Victoria are still well above the levels seen seven years ago — a result partially driven by population growth over this period — they have fallen sharply this year, coinciding with a downturn in Sydney and Melbourne property prices.
On face value, it suggests that a declining wealth effect from weaker property prices is deterring households from buying new cars, often the second-largest investment families make behind purchasing a home.
On top of weak discretionary spending in Australia’s latest GDP report, it adds to evidence that falling home prices are impacting consumer behaviour.
If this trend continues, it points to downside risks for broader Australian growth, and with it the outlook for employment growth, inflationary pressures and official interest rates.
Something to definitely keep an eye on in the months ahead, especially given widespread expectations that home prices in these cities will continue to fall for some time yet.
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