Australia | Mar 08 2010
By Chris Shaw
According to analysis from CommSec, 2009 was a good year for Australian consumers as they were the beneficiaries of government handouts, lower interest rates early in the year and retailers being forced to trim margins.
This meant over the full calendar year household disposable income rose 7.8%, which is an above average rate of increase.
Before the increase in interest rates late in 2009 the numbers were even better, as at one point last year, group chief economist Craig James notes, income growth was running at a rate equal to its fastest pace in 19 years.
Despite the increase in income, consumers didn't exactly go wild as household spending only increased by 5.2%, its smallest rate of increase in real terms in the last 16 years. James notes only 2.2% of this was an actual increase in spending, the remainder was the result of higher prices. He suggests the small real growth reflected both a weaker job market and concerns about the financial crisis.
The standout category in terms of where consumers did spend 'other major durables for recreation and culture', with most of the money spent in this category likely going on items such as boats, caravans and sporting equipment. The category recorded an increase of 29.1%, with James noting only 5.4% of the increase being attributed to higher prices.
Sporting and recreational services also did well in posting a 16.9% increase, this sector including items such as fitness classes, tennis court hire fees and green fees for golf games. Higher costs contributed only 4.8% of this gain.
Other sectors where spending increased significantly in 2009 compared to 2008 included water and sewerage charges, up by 17.7%, electricity, gas and other fuels that rose 14%, medicines and medical aids up 13.6%, audio visual equipment up 13.2% and hairdressing and beauty salons that increased by 12.6%.
The Sector to record the most significant decline in spending in 2009 was newspapers and books, which fell by 13.2%. James suggests this may have been consumers wanting to avoid bad news or reflected a shift to electronic means of getting news.
Other sectors posting solid falls were motoring fuel, which declined by 12.9%, jewellery, watches and clocks, where the decline was 11.4%, games, toys and hobbies, which fell 9.3% and child care services, where a decline of 8.8% was recorded.
James notes while these data are useful in the shorter-term, they are even more useful in showing longer-run trends as the 2009 data reinforced a 50-year trend of food, clothing and transport all registering declining shares of both consumer spending and household disposable income.
On James's numbers food, clothing and transport together consumed one-quarter of household disposable income in 1960, this falling to around 15% now. This has been replaced by increased spending on housing, which James suggests reflects both budgets allowing for this and consumers wanting to spend more in this area.
Lower spending on staple goods or essentials also reflects a higher standard of living, as this gives consumers both greater purchasing power and the choice to put extra dollars into areas such as housing and more discretionary items. As evidence of this James notes 'miscellaneous goods and services' spending has increased from 6% to 11% over the past 50 years.
In housing James points out imputed rent has increased from 6.0% in 1960 to 15.3% in 2009, though the share of income going to housing rent has stayed generally in a range of 14.5-15.5% since 1991.
Housing prices have risen by 240% since 1991 but James notes over the same period household disposable income has increased by 180%, so servicing of home loans has actually fallen in this time. James estimates the home loan rate with respect to disposable income has declined from an average of 13.4% in 1991 to 6.0% in 2009.
In summary, James suggests the trend of the past year has been for consumers to be more conservative, spending more when there are specials available and trimming the amount spent on non-essential items. He suggests investors watch these trends for any potential impact on consumer-dependent stocks, but with few signs of any change at present he expects a continuation of the downward pressure on profit margins.
