Released today, the Australian Bureau of Statistics’ (ABS) latest National Accounts data revealed that in the December quarter of 2018, Australia’s household saving ratio rose to 2.5%.

This ratio reflects how much Aussie households are saving from their net disposable income.

The slightly higher rate of saving in the December quarter 2018 was largely driven by modest growth in household disposable income and lower growth in household spending.

The ABS reported the higher disposable incomes came from higher wages over the period and an increase in insurance claims received by households.

According to figures released last month, Australian wages grew 0.5% over the December 2018 quarter, keeping the country’s annual wage growth at the three-year-high rate of 2.3%.

But a weakening housing market and high personal debt levels are said to have made households reluctant to spend on non-essentials.

Household spending grew by only 0.4% over the December quarter, continuing the modest rates of spending seen over the past few quarters.

Why households may be spending less

When house prices rise, homeowners tend to spend more because they feel richer – this is known as the “wealth effect”.

Given the widespread falls in house prices and the corresponding slowdown in household spending, it appears this can also work in reverse.

In a speech at the AFR’s business summit, RBA Governor Philip Lowe said RBA staff have been trying to model the impact of the wealth effect.

“They estimate that a 10 per cent increase in net housing wealth raises the level of consumption by around 0.75 per cent in the short run and by 1.5 per cent in the longer run,” Dr Lowe said.

“They find that it is highest for spending on motor vehicles and household furnishings and that for many other types of spending the effect is not significantly different from zero.”

The latest car sales figures appear to reflect the wealth effect acting in reverse, with car sales in February 2019 down 9.3% on the same month in 2018.

For feedback or queries, email dominic.beattie@savings.com.au