Spending faster than wages grow

HOUSEHOLDS are spending money faster than their incomes are growing, increasing the risk of a fresh financial squeeze as the property market slows down.

A new economic report by National Australia Bank says it appears people are dipping into their savings to pay for purchases but it still paints a broadly positive picture for jobs, businesses and state economies this financial year.

NAB examined more than 2.7 million customer transactions and found that despite the improving economic forecast, many consumers are not sharing in the benefits.

“Business profitability is up but they’re not paying higher wages,” said report co-author and NAB head of Australian Economics Riki Polygenis.

“Consumer spending is growing at a faster pace than average compensation per employee,” she said.

“What’s not clear is whether it’s a voluntary dip down in savings by households or whether part of it is involuntary, to fund expenses.”

Ms Polygenis said households were saving 4.7c of every dollar they earned, half of what they were less than a decade ago but more than their zero per cent savings amid the exuberance before the Global Financial Crisis.

She said if house prices fell and interest rates rose, people would have less of a savings buffer and consumer spending could be hit hard.

Financial strategist Theo Marinis said many Australians already had little or no savings to fall back on.

“If you keep eating into your savings, you will have no savings left, but people feel forced to do it because salary increases have been weak or flat and the cost of living keeps going up,” he said.

“You have to put money away for a rainy day.”

The NAB State Economic Handbooks report, released today, says that: HOUSING price growth will slow into 2018 and 2019. TOURISM spending and education exports will expand in most states. ECONOMIC growth is expected to strengthen in most states. THE jobs market will remain strong and wages growth should slowly pick up.