Household spending is important to our overall economic growth as it is the largest component of GDP. While the March quarter overall growth number, also released this week, was strong at 1 percent (3.1 percent for the year), about half was due to exports, suggesting domestic spending, especially consumption, is still pretty flat – indeed, household consumption only contributed 0.18 of that increase. 

This, therefore, raises significant questions about whether this overall growth is sustainable in coming quarters, especially as our trade numbers tend to bounce around, quarter to quarter.

The Reserve Bank’s reference to “household income” and “ debt levels” was the usual understated RBA language. 

Recent wage increases have been at historic lows, at around 2 percent per year, while the cost of key components of a household’s costs of living have risen much, much faster – electricity, housing, childcare, medical insurance and other health costs, school fees, and so on. 

Our households also have one of the highest, if not the highest, levels of household debt in the world, at over 120 percent of GDP, and approaching 200 percent of household disposable income! 

There is considerable recent evidence that many households have been running down their savings and/or increasing debt just to live week-to-week. 

It is also important to recognize that mortgages are the largest component of household debt, and many have stretched themselves to their financial limit, and for some, beyond, just to buy a house or an apartment. 

Now that housing prices have peaked, and in some areas started to decline, many households are increasingly concerned about their exposures, especially if the RBA were to begin to, what they call “normalize”, that is, raise interest rates.

These concerns are compounded by a growing sense of  “job insecurity”. Even though our measured, overall, unemployment rate seems stuck near 5.5 percent, this varies regionally. But, more importantly, “underemployment”, that is people not being able to work as many hours per week as they would like, is rapidly approaching double the rate of unemployment.  

There are, of course, many other complicating factors, including the rapid shift to online shopping, technological disruptions, a structural shift to “de-cluttering”, the changing age structure of households, and in the nature of work, and so on.  

 What the RBA should have admitted is that, while they are concerned about household consumption, they are powerless to do much about it. Their economic theories would have suggested that with all the liquidity they have pumped into the markets, with historically low interest rates, and a tightening labour market, wages should have increased dramatically, and with it household spending. These theories have failed!

What all that liquidity mostly did was simply move house prices beyond the capacity of the average household to afford, making them generally more conservative about spending elsewhere, and leaving them worried that house prices will now fall significantly, and interest rates may increase.

While our institutions such as the RBA struggle to remain relevant, our politicians will wallow in the better growth numbers, at least through to the next election. Households are left pretty much on their own, with at best modest, and inadequate, tax relief.