There’s interesting convergence of two seemingly unrelated research papers today which suggests that Australia’s retail sector, particularly the bottom end, should be very concerned about the big fall in consumer sentiment if it doesn’t recover soon.
The first paper from the Reserve Bank’s June Bulletin from RBA staffers Fiona Price and Richard Finlay titled “The Rise in Household Saving” looks at the rise in the savings ratio in Australia “in the late 2000s after an extended period of decline.”
This is an important topic because savings patterns and behaviour “influences household consumption, which accounts for a little over half of GDP”.
Price and Finlay find that,
The rise in household saving appears to have been underpinned by precautionary motives, a reduction in expected future income gains for some types of households and an effort to rebuild wealth after the global financial crisis. Also, the long transition to higher levels of indebtedness may have run its course over this period, including perhaps because of a change in attitudes to debt.
Further upon breaking down the data, obtained via the Household Expenditure surveys between 2003/04 and 2009/10, into income wealth and age brackets Price and Finlay note that the most vulnerable members tend to increase savings when the outlook becomes less certain for income and employment.
This is a point which neatly segues into a research report issued by Deutsche Bank Equity analysts Michael Simotas, Wassim Kisirwani and Monique Rooney on “Discretionary Retailers” which have recently been buffeted by the fall in consumer sentiment which has lead to a “number of downgrades from retailers”.
Consistent with the RBA paper, and perhaps a signal where different sectors of the economy are at presently, Deutsche Bank’s analysts note that,
Commentary from listed and unlisted retailers suggests that while the drop in sentiment has been experienced across the board, lower socioeconomic consumers have been more affected.
Indeed the recent Super Retail’s June trading update noted “that the lower than expected sales result over May to mid June was due to the “significant downturn in consumer confidence since the federal budget, particularly across the lower to mid income families”.
All of which seems to suggest that Australian households might be saving more at the moment due to the economic uncertainty with the effect that, as the Reserve Bank highlighted in the Minutes to this month’s Board meeting released on Tuesday, the outlook for the Australia’s domestic economy has become more clouded.