Australian households carry a lot of debt.
It’s not the world-leading levels of around 200% debt to income ratio that households carry in the Netherlands and Norway but it is at an all-time high of 161% as at the end December quarter 2015.
The level of this debt, and the desire by Australian households to repay it, can be a handbrake on growth if consumers focus on repayment over spending.
In a behavioural sense, low interest rates certainly help forestall any need, or desire, to repay debt. That’s because the cost of servicing it is so low compared to consumer expectations.
So households spend.
But there are other factors that also weigh on consumers’ decision to repay, borrow more, or spend.
Employment growth is certainly one very important factor in consumption and spending growth. So it’s important that there are more Australians working today than ever before.
The fact that Australia is creating more female part-time jobs is also a good thing, as Westpac senior economist Justin Smirk explained to Business Insider recently.
But, while employment growth is important one of the most important factors, probably the most important factor, in a behavioural sense, is employment security.
That is, how safe do workers feel in their jobs?
The good news on this metric, as revealed in the latest Westpac – Melbourne Institute consumer sentiment survey, is that Australians’ feelings about their job security is back at four-year lows.
This improvement was noted by Westpac chief economist Bill Evans in his note accompanying the release of May’s consumer sentiment.
“Unemployment Expectations to its second lowest level since January 2012. If sustained, this fall in the Index will be consistent with our expected steady improvement in labour market conditions.”
That, and the fact that consumer confidence rose 8.5% in May and is holding above the long run average, suggests the budget forecasts might be right and Australian consumers will happily spend to hold the economy aloft.