Here's The Best Explanation Of Why Australian Consumers Are Happy With Their Finances But Aren't Spending


A convergence of two conversations appears to have crystallised what is going on in the psyche of Australian consumers and why they can be happier with their family finances compared to a year ago and are increasingly happy about where they will be in a year’s time yet still not spending.

The first conversation was with David Flanagan, from Curve Securities in Sydney, Flanagan and I were colleagues in the past and his analysis and forecast of the Australian economy has always been pretty accurate. He even called the low of the 2009 stock market crash on the day it happened.

After seeing the weak internals of the NAB Business survey together with the ANZ and Westpac consumer confidence data Flanagan told Business Insider that he thought the disconnect between the family finances and spending is a little “chicken and egg.”

“While it would be usual for the uptick in the outlook about personal and family finances to translate into higher spending in this instance it is the lack of spending and low interest rates which has allowed consumers to pay down their mortgages and in doing so repair their personal balance sheet,” he said.

Which means consumers feel better but the money is going back to the banks and not into retailers’ pockets.

Which brings me to the second conversation with Tim Roche, Fitch Ratings Senior Director of Financial Institutions. Roche issued a report yesterday about the state of risk within Australian banks mortgage books.

The report has a chart which seems to back Flanagan’s assertion, that it’s the accelerated repayment of mortgages and balance sheet rebuilding that is making Australian consumers happy.

Roche agreed that Flanagan’s premise was correct.

Source: RBA Chart Pack

But when asked if the balance sheet rebuilding evident from accelerated mortgage repayments would ultimately, eventually, see consumers start spending again, as Governor Stevens has said in the past and Westpac chief economist Bill Evans said on SkyBusiness yesterday, Roche said it was “complicated because measures like debt/income haven’t really changed despite the apparent increase in prepayment rates.”

Which neatly ties it all up in a bow.

There is a lot of focus on the wealth of Australians through property and super but many Australian households and Australian households in aggregate are still carrying a large amount of debt. A stock of debt which must be repaid with a flow of earnings no matter how wealthy they might be on paper.

So consumers are more confident about their finances and their financial future but they aren’t spending – yet.

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