10 April 2017

Over the past week Australian shares were largely unchanged. Shares in developed countries lost 0.4% with the US market down 0.3%. Shares in emerging markets rose 0.3%. The Australian dollar was 1.7% lower at 75.00 US cents. The 10 year bond yield in Australia was 0.15% lower at 2.55% while in the US, the 10 year bond yield closed 0.01% lower at 2.38%. The oil price rose 3.2% to 55.24 US dollars per barrel.

Consumption is an important driver of economic activity and a measure of quality of life. So how are Australian households travelling? The overall picture is reasonable but not outstanding, like many other parts of Australia’s economy. The charts below from the Reserve Bank of Australia’s (RBA) February Statement of Monetary Policy provide good insight.

Household Income, Consumption and Wealth*

Graph

In the top chart, we can see that consumption growth remains positive, so broadly households are experiencing improved quality of life. Household disposable incomes continues to slow, but this has not yet flowed directly into a drop in consumption growth. How can this be? It appears that people are saving less (see second chart). This is likely because they feel they can afford to save less as, on average, households feel wealthier (see third chart). This is largely due to house prices being strong but also because of rising share markets. 

Overall Australian households are travelling ok but this is largely because of wealth effects rather than higher incomes. This leaves Australian households, an important part of the economy, vulnerable to a correction in asset markets.

Signing off

David Bell

Past performance isn't necessarily an indicator of future performance.
All data sourced from Bloomberg and the Reserve Bank of Australia