Weekly Reports | 10:02 AM
Population growth is obscuring a fall in household consumption, the case for housing-exposed stocks & the lack of financial advisors.
-Declining consumption obscured by population growth
-The case for housing-exposed stocks, with reservations
-Financial advisor numbers lag expected demand
By Mark Woodruff
Declining consumption obscured by population growth
The main reason household consumption growth in Australia has remained in positive territory is population growth, argues Oxford Economics, pointing out real spending is being weighed down by inflation and higher interest rates.
In close to the fastest pace on record, net overseas migration has surged to 490,000 in FY23, and will likely remain elevated at around 375,000 in FY24, notes Oxford. These numbers represent year-on-year population growth of 2.3% and 1.9%, respectively.
Despite briefly returning to the pre-pandemic trend in the third quarter of 2022, consumption on a per-capita basis has declined for the last three quarters.
Spending on essential items has tracked sideways since covid and has failed to return to its pre-pandemic trend, indicative of an inflation squeeze, suggests Oxford, and the effectiveness of monetary policy in curbing spending.
Oxford attributes the relative weakness in spending on essential items to falling consumption-per-capita on food, utilities, and vehicle maintenance, along with reduced spending on insurance and financial services.
The rebalancing of consumption between goods and services has finished, suggests Oxford, after the pent-up spending on services following covid. The share of spend on goods is stabilising very close to its pre-pandemic average.
Oxford believes this decline in consumption-per-capita is approaching its nadir, and forecasts the metric will track sideways over the next year.
During 2025, it’s thought a recovery in real incomes, along with cash rate cuts (during late-2024 at the earliest) will facilitate a rebound in spending.
Nominal wages growth will be supported by an ongoing tight labour market, while inflation should return towards the Reserve Bank’s target range.
Both of these outcomes should support real wage growth, suggests Oxford Economics, thereby boosting disposable income and consumption growth.
The case for housing-exposed stocks, with reservations
Jarden likes to track where the housing market and residential construction are positioned in the cycle, given housing is a key driver of both the macroeconomic cycle and of housing-exposed stocks such as banks, building materials, residential REITs, and retailers.