One of the mysteries of recent business activity, annual meetings and profit updates seems to have been solved by this week’s National Accounts for the September quarter.
From Harvey Norman to JB Hi-Fi, Myer, David Jones, Metcash, Noni-B, to Telstra, Fosters, and the banks have all reported or noted that their customers have gone all shy, looking instead of spending, and when they spend, trying to buy more wisely at lower prices, and using the impact of the stronger Australian dollar to help them.
An exception has been the car industry where the hangover of the stimulus spending, and then the higher dollar, has seen sales grow up until September-October.
But new car sales will still top the million mark and 2010 could be the second strongest year in history.
Another has been travel, where the stronger dollar has seen over 10% more Australians travel overseas this year, taking the money out of the country to spend elsewhere.
But that doesn’t disguise the significant change in behaviour by Australians in the past year or so.
That’s led to an increased reluctance by consumers to spend, which in turn has torn holes in corporate projections, especially in retailing, this year.
Reserve Bank Governor Glenn Stevens put his finger on the trend in his speech in Melbourne earlier this week.
"The revision lifted estimated household saving by $45 billion, or about 5 percentage points of income, from the previous estimates," Mr Stevens said.
"The net saving rate is now seen at some 9–10 per cent of income over the past year or two, up from about -1 per cent five years ago.”
And then the national accounts revealed the savings rate was more than 10% in the September quarter.
Australians are doing something we have been told for years, saving and not spending, and in turn boosting national savings.
Out of this slowdown has come the new battle in business, the banks and other deposit takers versus the consumer destinations, such as retailers, pubs, coffee shops (and the banks’ own credit card businesses as well).
Price deflation in the form of lower prices for fruit and vegetables (following the ending of the drought and the best growing season for at least five years) is adding to this pressure, as is price deflation caused by the higher dollar.
These are factors that will impact domestic sales, earnings and share prices (not to mention dividends) for the next year or more.
Rising interest rates might be introducing more caution, but that reluctance to spend has been there for two years, when rates were around 3%.
The government stimulus money disguised the impact of this reluctance which is now dominating consumer thinking.
And we can be sure the RBA will continue to make sure we remain reluctant to spend next year and into 2012, as we have been for the past two years.
If we are, it lessens the chances of more rate rises.
It’s something every investor will have to keep in mind, especially those with money in companies or sectors that face the consumer (around 60%-70% of the economy).
And, buried within this change in consumer behaviour is a battle between the banks and the spending sectors, or between the banks and retailers, telcos and the like.
It’s a battle between the savers and the spenders and the former are winning hands down, which is good news for the economy, for consumers, government and companies.
That means over-reliance on debt is starting to ease, and our banks are finding more stable deposits domestically to fund themselves instead of borrowing off shore with all those risks at the moment with the eurozone again under pressure.
But it is the change to the savings rate that stood out.
The household savings rate reached 10.2% in the September quarter, up from 8.9% in the previous three months (and 11.6% in 2009).
Five years ago that rate was just 1%, so it’s an amazing change of behaviour.
A savings rate of around 10% is the level some well performed emerging economies manage to sock away with their less developed service sectors.
The fastest growth in savings has been in term deposits, which the RBA estimates are up 21% in the past year.
The RBA figures show $422.4 billion was held in bank term deposits in October compared with $348 billion last year.
That’s helping the banks get more stable funding.
They are having to pay for it, meaning savers are getting the best returns for years.
But if we save more, we spend less because we are also not dashing out to put it on a credit card, trying to have two bites at the apple (spending and saving at the same time).
Reserve Bank figures show the number and value of credit card purchases in September (the latest figures) were lower than in June and in March of this year.
Household consumption rose 0.6% in the quarter, down from the 1.4% rise in the June quarter.
Wages and salaries rose 1.3% in the quarter and 7.2% over the year.
In fact looking at the national accounts we spent less on cigarettes in the quarter and in the year to September (that’s the impact of the tax rise earlier in the year, kicking in), spending on alcohol was flat in the quarter and down over the year (the alcopops tax from 2009 having an impact), down on communications (newspapers, Pay TV, etc) over the quarter and the year, while spending on cars went negative in the quarter (down 3.1%) but was still up a boom-like 13.9% over the year.
We spent more on clothing in the quarter and over the year, more on rent over both periods of time, hotels, cafes etc (up 1.6% in the quarter and 5.5%
