David RichardsAustralians in particular those with families are better off now than they were before the economic downturn claims Citigroup one of the world’s leading investment banks. Mortgages have fallen by 2% Petrol prices are at an average of $1.04 Vs $1.41 twelve months ago and share market dividend yields have risen substantially. This they say has added $75 to the average weekly income.
They also claim that drawing conclusions about the “average” Australian can be dangerous. Only 35% of Australian households have a mortgage. 29% are renting and 45% of Australian households are families with children, while 20% are retirees.
They say that families with children are better off by $119 a week because they have benefitted from Government handouts. Retirees and renters have a substantially smaller benefit.
Citigroup’s recent report claims that retail sales growth was solid in January with the strongest growth recorded in food retail. Supermarkets, takeaway food outlets plus restaurants and cafes were all stronger. The sharpest slowdown was in appliance retailing and footwear sales.
They say that mortgage debt is concentrated within 35% of Australia’s population however they do predict that Australian households are facing a number of challenges with rising unemployment and falling asset prices.
However, both the RBA and Federal Government are cushioning the average household through interest rate cuts and tax cuts, especially for families.
The say that the recent Federal Government fiscal stimulus for households will boost household income by an average of $2,000 per household because of income tax cuts, tax bonuses and payments for seniors.
Citigroup say “We estimate the average Australian household’s income will be $75 per week higher in 2009 compared with 2008 (+$3,881 per year). Families with children are even better off, with an increase in income of $119 each week. We arrive at these estimates by rolling forward the expenditure that each demographic group had in FY04, as reported in the ABS Household Expenditure Survey.”.
The net increase in income is highest for families with children (45% of all households) and smallest for those retirees reliant on investment income with fewer benefits from mortgage rate reductions and tax cuts.
Currently unemployment is at 4.8% and is likely to rise to at least 5.4% by the end of 2009. Each 1% rise in the unemployment rate reduces income dramatically for a family, but the overall impact on household income is 1%. The bigger concern with unemployment is weaker consumer sentiment and a fall in the willingness to spend.
While disposable income is rising for households, the high level of debt and uncertainty has resulted in an increase in savings, detracting from retail spending. The household savings rate jumped to 8.5% in the December 2008 quarter compared with virtually no savings in 2007.
They conclude by saying “Consumers have never had it so good. For the past fifteen years, retail prices have not kept pace with overall inflation.” They also conclude that Companies like Harvey Norman and consumer electronics retailers will benefit from Government stimulus programs however appliance sales are expected to remain flat.
Dowload the full report here.