Australians now saving 6.4% of income

Australian households saved 6.4% of their income from July to September, up from 6% in the previous quarter, per the National Accounts.

The August RBA cut might go some way to explaining this, as well as a 1.7% increase in gross disposable income driven by higher wages and superannuation income.

The economy as a whole grew 0.4% through the quarter, which was below what all the big four banks were predicting, with GDP per capita growth flat.

ABS Head of National Accounts Grace Kim called it "steady" growth that matches average quarterly growth post-pandemic.

"GDP per capita was flat for the quarter as economic growth was in line with population growth," she explained.

Aussie households back in the black?

After significant revisions to the data from previous quarters, the ABS now says the household savings ratio has been above 5% since September 2024.

During the RBA rate hike cycle, Australian households were saving significantly less, bottoming out at just 1.8% during the June 2023 quarter.

The cash rate at that point was 4.10%, so at the current 3.60% the trend suggests that many Australian households are under significantly less pressure than they were a couple of years ago.

Other data corroborates this with Roy Morgan research finding about 25.3% of mortgage holders were in 'mortgage stress' over the three months to September - the lowest proportion since February 2023.

Stagflation threat on the rise?

Last week the ABS revealed Australia's headline inflation rate jumped to 3.8% in October, with trimmed mean inflation up to 3.3%.

Both these figures are well outside of the RBA's 2-3% target band, pointing to excess demand in the economy and poor productivity not helping boost supply.

After today's GDP figures, back of mind for some policy makers may be the possibility of a 'stagflation' scenario like that currently facing New Zealand.

Stagflation means inflation is too high while economic growth is stagnant, which makes it difficult for the Reserve Bank to correct course since lowering interest rates could boost inflation while higher rates would be a further curb to growth.

For now it won't be the most pressing concern (New Zealand's GDP shrunk 0.9% from April to June) but the RBA is still likely to pay careful attention to the incoming GDP figures as well as inflation.

Labour productivity improving?

The productivity of Australia's workforce (measured in GDP per house worked) increased 0.2% through the September quarter and 0.8% over the preceding 12 months.

It suggests there's a good chance that labour productivity will meet or even exceed RBA forecasts in the Statement on Monetary Policy in November, which predicted a 0.9% increase over the 12 months to December.

Real unit labour costs, which measures the average cost in labour per unit of output (if you pay $100 to workers that produce 50 cartons of eggs, there's a $2 labour cost per carton) also decreased by 0.1%.

While it's likely too early to declare that dwindling productivity, a major source of concern over the past year, has started to turn around, these numbers do suggest the efficiency of Australia's workforce is improving.