Consumer sentiment drops to historic lows as household debt grows

Australian consumers are taking a hammering, with new research showing consumer sentiment has dropped by an alarming 11% and the level of debt in Australian households is rising dramatically.

Australian consumers are taking a hammering, with new research showing consumer sentiment has dropped by an alarming 11% in September and the level of debt in Australian households is rising dramatically.

Chief economist Bill Evans says a drop of more than 11% has only occurred nine times since the survey’s beginning, including the sharemarket crash of 1987 and the 11 September attacks.

“We can now safely put the recent turbulence in financial markets in a similar category for its impact on the confidence of Australian households,” he says.

Evans says the news isn’t good for the upcoming holiday period. “Today’s reading is the lowest level we have seen since the survey began in 1975, and around 22.3% below its average level during the last recession. That is sending a chilling message to retailers as we approach the Christmas season.

“Leading indicators of jobs growth are pointing to a significant slowdown in jobs growth and even the Reserve Bank is forecasting a jobs slowdown that would see the unemployment rate increase by around 1%. That would equate with the style of unemployment increases we saw in the last two slowdowns.”

But Evans says more relief is on the way, commenting yesterday’s rate cut was timely. “We expect that unless there is an unexpectedly swift improvement in credit conditions, the bank will aim to move financial conditions back to neutral within the next three to six months.”

The Dun & Bradstreet Consumer Credit Expectations survey shows debt levels are on the increase. Over 19% of Australians expect debt levels to be higher in three months, while 26% of “blue collar” households expect higher debt by Christmas.

The survey also shows around a third of those households with incomes more than $70,000, who are in full-time work or who are designated “white collar”, will tighten spending.

But it seems Australians are turning to credit cards to ease their woes, with 21% of those surveyed saying they will use credit cards to buy products they otherwise could not purchase. For those aged 18 to 34, that rate jumps to 29%.

And while 5% of households say they expect to miss at least one bill payment, the number jumps to 7% for 18 to 34 year olds and 9% for households earning less than $30,000.

Dun & Bradstreet director of corporate affairs Damian Karmelich says the results are alarming.

“Australia’s national accounts show higher mortgage interest rates and rapidly rising prices have forced households to cut real consumption of discretionary items and basic needs such as transport and food,” he says.

“This has shown through in the decrease in national expectations for higher debt levels, however the significant jump in expectations for certain demographics clearly reveals the divide between the haves and have-nots.”