New analysis suggests the threat of housing-led spending slowdown in Australia may be overblown

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  • There’s increasing unease about the potential for Australia’s housing market downturn to spillover into other parts of the economy, including household spending.
  • Spending on goods and services from the NAB’s customer base increased at a faster pace last quarter.
  • The improvement likely reflects a modest pickup in household incomes, strong population and employment growth along with higher prices.
  • Home prices tend to lead employment and household spending after six months or more, according to new research from UBS, meaning the full impact on the economy may not have been felt yet.

Concerns about a housing-led slowdown in Australian household spending are elevated at present, creating doubt as to whether the broader economy will be able to maintain the strong momentum seen in the first half of 2018.

Such an outcome will make it difficult to lower unemployment, lift wages and inflation in the coming years as the Reserve Bank of Australia (RBA) currently expects, especially given the influence property prices have had on employment and consumption in the past.

While that remains a risk in the period ahead, particularly should home prices continue to fall, the signs from the latest consumer spending trends survey from the National Australia Bank (NAB) suggest that households are not shutting their wallets and purses just yet.

Spending levels are actually increasing at a faster pace across most parts of the country.

“Total NAB customer spending grew 7% year-on-year in Q3, up from 5.6% in the previous quarter and 3.0% in the same quarter a year ago,” the bank said.

“Spending grew in all capital city metropolitan areas with the rate of growth faster than in the previous quarter and relative to same period last year in all cities bar Darwin.”

The improvement likely reflects a combination of factors, including a modest pickup in household incomes, strong population and employment growth along with higher prices.

In Sydney and Melbourne, where property prices have fallen the fastest of any capital city this year, the NAB said spending increased by 7.8% and 8.2% respectively over the year, just behind top-placed Hobart at 8.9%.

As seen in the map below from the NAB, average monthly spend on goods and services in metropolitan areas was $2,255 last quarter, up from $2,206 in the three months to June $2,140 in the same quarter a year ago.

NAB

“Sydney ($2,341) and Melbourne ($2,306) again led the way, followed by the ACT ($2,192), Perth ($2,165), Brisbane ($2,164) and Adelaide ($2,124),” the NAB said.

“Spending was lowest in Darwin ($1,970) and Hobart ($2,098).”

In regional areas, spending levels also increased, lifting to $2,021, up from $1,992 in the June quarter and $1,985 a year earlier.

By category, the NAB said spending on professional, scientific and technical Services replaced accommodation and food services as the fastest growing area of customer spending, lifting by 12.8% and 12% respectively over the year.

That was followed by growth in spending on arts and recreation and transport, postal and warehousing.

Spending was weakest for wholesale trade and construction.

The NAB report looks at both online and offline transactions, with spending measured on where the customer lives rather than where the actual spending takes place.

Importantly, it does not include spending on government services, tax payments, mortgage and other credit facility repayments.

Given the amount of transactions monitored, the NAB says it provides an indication of national and regional trends. It can be extrapolated to what’s happening across the country, in other words.

The news of pickup in household spending will likely please policymakers at the RBA who continue to view the outlook for household consumption as one continuing source of uncertainty.

“The outlook for consumption continued to be a source of uncertainty in an environment of slow growth in household incomes, high debt levels and easing conditions in housing markets in some parts of the country,” the RBA said at its November monetary policy meeting.

“These conditions warranted close monitoring.”

While the NAB report — accompanied by above-average levels of consumer confidence based on various measures — suggests spending is continue to be supported by stronger job market conditions, not everyone is sure that trend will last.

According to analysis from UBS, movements in home prices tend to lead changes in employment and household spending growth by around six months or more, meaning the potential impact from the housing downturn may not be fully felt until the quarters ahead.

That’s definitely something to keep an eye out for in the months ahead given the implications it would have on the broader Australian economy.

Australia will receive official household consumption data for the September quarter in early December.

In forecasts offered earlier this month, the RBA predicted household consumption would growth around 3% per annum over the next two years.

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