Australian living standards are 'going nowhere' as households feel the pinch

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  • The ANZ-Roy Morgan consumer confidence index fell by 2.5% last week.
  • The sharpest fall was in sentiment towards current household finances.
  • It follows last week’s GDP report showed that GDP per capita was flat in Q4 2017.

Economic sentiment among Australian households dipped sharply last week, weighed down quarterly GDP data which was weaker than expected.

The weekly measure of consumer confidence compiled by ANZ and Roy Morgan declined by 2.5% last week to a reading of 116.

Falls were registered across all of the major sub-indexes, partially unwinding small gains over the previous two weeks.

The survey is based on around 1,000 face-to-face interviews, conducted over the most recent weekend.

Of particular note last week was the increasing level of pessimism towards household finances. Views towards financial conditions over the next 12 months extended the previous week’s decline with a sharp 5.5% fall.

According to David Plank, ANZ’s Head of Australian Economics, the market response to last Wednesday’s Q4 GDP data is likely to have weighed on sentiment.

“Much of the commentary centred on the fact that living standards per person have gone nowhere over the past year — something that may have resonated with the personal experience of many people,” Plank said.

Although last week’s quarterly update on economic growth revealed a stronger contribution from domestic consumption, the underlying data illustrates why many Australians feel they’re running in place.

For one thing, GDP growth per capita was flat for the quarter, while total output per hour went backwards for the year — meaning productivity remains poor.

The results suggests that Australia’s headline GDP growth is largely being driven by a fast-rising population, without a commensurate increase in people’s living standards.

Plank added that while the GDP was slightly disappointing, it was driven in part by temporary factors and ANZ still expects the Australian economy to perform well in 2018.

“We are, however, cognisant of risks to the downside,” Plank said.

“The recent strength in household spending seems unlikely to be repeated, given that wage growth is yet to pick up substantially and debt remains high.

“Households appear to share this concern – views towards future financial conditions have fallen from their peak in January and are approaching their long-term average.”

Across the other major sub-indexes, views towards current economic conditions fell by 3.5% last week while views towards future economic conditions slipped by 1.9%. Inflation expectations also moved slightly higher.

Last week’s decline saw the weekly reading slip below its four-week moving average of 117.1, but it remains comfortably above the long-term average of 112.9.

Plank said that more broadly, the current reading of 116 remains above the level it stood at for most of 2017 — which suggests some resilience among Aussie households is still evident.

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