Australians are feeling the pinch of stagnant income growth, as the cost of living remains the biggest cause of consumer anxiety – and it’s having an impact on their savings.
The National Australia Bank (NAB) Consumer Anxiety Index moderated over the first half of 2019 falling to 55.8 points, compared with 62 points seen in the December quarter.
But the cost of living still remains the biggest cause of consumer anxiety, with one in four consumers rating their anxiety over the cost of living as “very high”.
NAB Group Chief Economist, Alan Oster said the results of the survey points to a big disconnect between inflation and consumer-focused costs.
“With official inflation figures indicating weak consumer price pressures, the results of the survey points to a disconnect between low levels of economy-wide inflation and consumer focused costs,” he said in the report.
“With an election looming, anxiety over government policy was much higher than year-earlier levels. The survey was conducted prior to the official election announcement, but consumers would have been aware that an election was looming.”
Unsurprisingly, anxiety levels were the highest for those earning under $35,000 annually – less than the minimum wage.
Australians struggle to save
The survey found many consumers struggled to save in an environment of stagnant income growth.
Over four in 10 (44%) said their savings had taken a hit in the past three months and nearly a quarter (23%) said their incomes fell.
Debt levels increased for 18% of consumers, with the 18-29 year-old age bracket affected more than any other age group.
But despite lower levels of consumer anxiety than in the last quarter, the survey showed consumers pulled back significantly on non-essential purchases, especially on entertainment, major household purchases, eating out, home improvements, and personal goods.
Despite this, one in four (25%) said they spent more than they earned over the past three months – around the same number that said their incomes had also fallen in the past three months.
Falling home prices weigh on consumer spending
The drop in house prices combined with weak income growth is weighing on consumer spending.
The Commonwealth Bank Household Indicators Report, released today, highlights the negative ‘wealth effect’ of falling house prices is gaining speed.
Commonwealth Bank’s Chief Economist Michael Blythe said the market downturn has only added an extra layer of concern.
“The combination of high household debt, weak income growth and household budget pressures have been in play for a while now. More recently, falling house prices have added an extra overlay of concern,” he said.
After the RBA’s decision to leave interest rates on hold this week, Mr Blythe said income tax cuts would stimulate consumer spending more than interest rate cuts would.
“Tax cuts benefit most consumers, not just the one-third with home loans. They place cash in the hands of consumers while borrowers, in most cases, have fixed their repayments in dollar terms and would have to request a variation from their mortgage provider to free up some spending power,” he said.
But it’s not all bad news for consumers – the CBA report found that pressures from day-to-day household bills such as fuel, power, education and transport had eased.
Despite this, NAB’s report found that the biggest increase in consumer spending was on transport.