Household confidence crash continues

Recessionberg! Via Martin North:

In our latest release to September 2019, the DFA Household Financial Confidence Index fell again, having move sideways more recently. In essence households are simply reflecting that rate cuts, a lower dollar and the international bad news from Trump’s Trade Wars, Brexit and Hong Kong are all making them more concerned, and less willing or able to spend. On top of that the local pressure on wages and rising costs, plus the heavy toll on savers with funds on bank deposit are also hitting. Finally, property is not in recovery mode and buying intentions are down again, after being a little higher after the election. The economy is in deep trouble. The Government and Regulatory response is not cutting the mustard from a household and small business perspective.

Overall the index fell to a new low of 84.2, compared with 85.5 last time, this is a significant one month fall.

All wealth segments faded, but those holding property without mortgage, and with market investment (stocks and shares) did a little better than those with a mortgage and those renting. All three segments are below their 100 neutral setting.

Across the property segments, those owner occupied households with a mortgage are relatively more positive compared with property investors who continue to see their rental streams under pressure, and now even those renting or living with family or friends are also reacting to costs of living rises, and flat incomes. We also registered a number who say landlords recently lifted their rental agreements, adding to the pain.

Across the states, the falls are relatively uniform, with the confidence levels bunching at low values in the eastern states. Falls in SA and QLD were offset by a slight rise in WA. But NSW and VIC both fell.

Across the age bands, those aged 50-60 registered a significant decline as falling income from bank deposits hit home following the recent cash rate cuts. All other segments fell too. This is a broad based decline.

Turning to the moving parts, household incomes remain under pressure, with little evidence of any recovery in the system. More than half have real incomes lower than a year ago.

Costs of living continue to rise, and recent petrol prices are making an impact, along with council rates and childcare costs. Food bills are also rising and here the impact of the drought is hitting some costs hard now. 92% of households reported a rise in living costs compared with one year ago.

Savings are under pressure, as many households continue to tap into their savings to support their life-styles. But those with savings in bank deposits continue to see rates falling, meaning that incomes from deposits are being crushed. That said, of the 3 million relying on income from savings, less than one third are considering seeking out higher risk saving options to boost returns. The rest are moderating their spending patterns to suit the new low rate environment. However, there are limits to this approach as rates continue to tumble. Those on fixed term rates are facing a real challenge when their funds are due to roll next!

Rate cuts have helped at the margin, but there was a further rise in those feeling less comfortable about their level of debt. We see a rise in concern about making monthly repayments on time, but also an issue with paying off debt in due course (given home price growth is anemic at best). Many continue to pay down credit card debt, though a minority continue to accumulate more debt, in order to balance their budgets.

Employment prospects are under pressure in the retail and construction sectors, across all states. There was a 1% fall in those feeling more comfortable, to 8.6%. But there is a marked fall in NSW and VIC and there residential construction has stalled. Employment prospects are brighter in the Public Sector, so Canberra is showing more positive news here.

Finally, net worth has taken a hit again, as property values are not rising for many (and the evidence of negative equity is growing). The oft quoted recent rises in Sydney and Melbourne clearly do not tell the full story. Property investors with units across the country are increasingly nervous about the true value of their property in the light of the poor quality certification and construction issues which are rife in the sector.

So, there is really little here to offset the gloom. Whilst lower cash rates may translate to lower mortgage rates for some, this is not sufficient to counter the negative news. And more households are seeking to pay down debt in an attempt to protect themselves ahead.

This signals more economic weakness ahead.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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  1. Costs of living continue to rise, and recent petrol prices are making an impact, along with council rates and childcare costs. Food bills are also rising and here the impact of the drought is hitting some costs hard now. 92% of households reported a rise in living costs compared with one year ago.

    Yet the ABS and RBA say “inflation is at record lows”.
    Why do people perceive that the cost of living is rising when the experts say it is not?

    • Of course, people are wrong and the experts are right.

      No wnder people lost confidence. I mean, if you cannot trust your own perceptions, how can you have any confidence?

    • Yup, anyone who does the household shop on a regular basis knows for a fact that the prices of grocery items are pushing higher, aggressively in some cases. Less frequent discounting, lower discounts. The exception is the discretionary can-do-without stuff that isn’t moving.

      People who can’t connect a lower AUD with higher inflation are in for a nasty shock. When unleaded hits $1.80 / $1.90 little Joshie is going to sh1t his pants because, guess what — no more rate cuts for you! I wouldn’t take for granted that it’ll be ZIRP + QE 4EVA here. The currency will start to matter soon enough.

      But it gets better — when Scummo is forced to crank up the deficit spending, that will pressure the currency even more and the coveted AAA rating (lol) too and then the RBA will be forced to consider (gasp) raising rates. The only hope is that el Trumpo decimates the USD and saves the world (for a bit).

      • The thing is, by the time the RBA is forced to consider (gasp) raising rates it will be too late to stem the hyperinflation or save the currency. After all, many countries tried that in vain.

        • No, no, you don’t understand …. the clever clogs at the RBA have inflation under their spell.

          It can be licked in the blink of an eye 😉

      • The RBA’s policy is to “look through” imported “cost push” inflation, as it is not “real” inflation, apparently.

        According to the RBA: “Cost push inflation due to a falling exchange rate is not the same as demand pull inflation” and doesn’t require interest rate increases.

        Sometimes I wonder if the RBA only reason for moving rates is to keep house prices rising?

        • The only inflation central banks believe in is that which afflicts iPhones – hedonically adjusted, of course.

          What a bunch of worthless cvnts

    • Mining BoganMEMBER

      Was listening to some older guys talking today at work saying they couldn’t survive without the overtime which is slowly being taken away. These are the 50-year-olds who should be starting the wind down into a lazy retirement job. Both were saying that they’d be rooted if the missus didn’t work as well. These aren’t even the negative gearing types, just your average punters with a house and two cars, kids grown up and gone.

      Never been unemployed, never had financial hardship before but the cost of living today is hurting even the two income families.

      This confidence crash has a long, long way to go.

      • Isn’t it wonderful that, after the once-in-a-century mining boom, you have nothing to show for it?

        The Moron Side of the Force is indeed a pathway to many abilities some consider to be unnatural.

        • The failure of Howard and Rudd.

          By the scale of it, I’ve said we had a once in a millennium boom. Howard had nothing to show for ‘expert economic prowess’ than the feel good of booming house prices, so it was maintained.

          We got hit in the ass by a rainbow in 2008 with a China stimulus, so instead of our property collapsing like the rest of the world, this prevented it. Rudd has to shop it because of the ALP perception of ‘poor economic managers’, unwinding the previous 11 years (of a bubble)

          With this absolute gold rush, we could have bought the entire world that was not bolted down at fire-sale prices.

          What did we do? We used this lump sum, thought it would be a good idea to go to foreign debt markets, leverage up and pay more for our existing housing stock.

          We could have been wealthy, instead we went into debt to further inflate a property market already in a bubble.

      • Seen quite a few of those men, from Elsternwick to Thornbury.
        Often on contract work ( even teaching), know this is their last contract, know they can’t live on their pension, benefits etc.
        Resigned to poverty, looking at doing casual cash in hand work, at a time when they would have been planning to wind down to retirement.
        And a few women too .
        – one story – sold her house in Geelong area to get rid of mortgage, bought a smaller house in a country town for cash, and started looking for work( nurse).
        -7 years of unemployment, credit cards maxed out, loan from bank needing to be repaid, and literally going hungry.
        So, selling house which will clear all the debts, but leave her with same Newstart income, no job, and no roof over her head at 62.
        This is crazy.

      • People are starting to hurt. They can’t understand why they’re going backwards. Something will have to give eventually

        • Mining BoganMEMBER

          I tell them every day that the high price of land flows into everything.

          They stop listening after that.

          • Mining BoganMEMBER

            Nah, they’ll have their free lunch. They just blame any price rise on renewables. Of anything. Except land.

            That’s lifted by the hand of God himself.

          • I love that you try MB. What’s that saying? It’s hard for a boomer to understand something when their wealth depends on them not understanding it?

    • “Why do (A) people perceive that the cost of living is rising when the (B) experts say it is not?”

      Experts calculate it, they analyse it because there is a pay cheque to do so. Those signing the pay cheque may influence said analysis.

      People live it.

  2. proofreadersMEMBER

    An inconvenient truth for ScoMo, Josh and the RBA happy-clappy angels of death for savers – nice work (not). And for their next trick?

  3. There seems to be an error in the last graph showing net worth. The red line showing those who believe their net worth is lower is flat since about March this year while the other two lines have been fairly dynamic. Surely the sum of those three lines must be constant?

    I could be wrong.