Australians could be forgiven if they missed a new record in their economy this week.
Motor vehicle sales, one of the nation’s least-watched economic data, reached an all-time monthly high in May as buyers splashed out on more than 100,000 new vehicles. The buoyant trend appears to defy central bank and economists’ warnings about weak consumer spending amid record-low wage growth and record-high household debt.
Or perhaps things aren’t so bad and Aussies are getting used to tight-fisted employers. While household consumption rose only 0.5 percent in the first quarter, the measure is still just under its 10-year average. At the same time, some things are getting cheaper: car prices have been flat or falling in recent years, and rising slower than workers’ wages, according to Craig James, an economist at Commonwealth Bank of Australia’s securities unit.
“While consumers at the moment aren’t overly chipper about life I think they’ll get used to the fact that wages are growing at a much slower pace than what they’ve done in the past,” said James. “Things have been getting more affordable and that just reflects the fact that our standard of living has been continuing to increase.”
Sales of new motor vehicles rose for the third straight month in May, with annual purchases of sports utility vehicles and other more commercial-type vehicles near record highs. Buyers still aren’t feeling too well-heeled though, with annual growth of luxury cars at five-year lows, according to the Commonwealth Bank.
The Reserve Bank of Australia is hoping Aussies don’t get too complacent about their miserly pay gains. Governor Philip Lowe said as much on Monday, when he encouraged workers to ask for larger wage rises. Company profits are soaring and fatter pay packets would of course help core inflation return to the bank’s 2 to 3 percent target.
But workers’ fears about job security are a big factor holding them back from making demands. And while cars may be an affordable luxury, houses aren’t.
One of the RBA’s biggest concerns is that a mortgage mountain that’s driven household debt to 189 percent of income becomes a long-term strain on spending. While consumption is yet to fall off a cliff, the savings rate dropped to the lowest in almost nine years in the first quarter.
“People are still spending,” said James. “They’re just spending in different ways.”
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