Speeches from the two senior Reserve Bank’s officials have given more clues as to why Australian consumers are changing their spending patterns in quite significant ways.
Both speeches should be read by investors who wonder about the follow the leader approach Australian markets and investors have towards US markets and economy; and by those still wondering why some retailers are doing it well and others (like David Jones and Myer) are struggling.
Take the first speech by Deputy Governor Ric Battellino in New York where he wondered if Australia would still catch a US cold.
He pointed out that the US and Australian economies had diverged in the past 11 years (the US has had two recessions, one savage. Australia has had a couple of mild slowdowns, but no slump).
But his most interesting comments were his repeating of the argument in Tuesday’s board meeting minutes, that investors and analysts (such as bank economists) may be misreading the reason for the recent fall in market yields on Australian Government securities.
"Financial markets seem to have concluded that the risks are weighted towards the Australian economy weakening sharply and, taken literally, seem to be pricing in a reduction in official interest rates towards the unusually low levels reached after the global financial crisis.
"There are technical reasons why current market pricing may not be giving an accurate picture of interest rate expectations.
"Nonetheless, markets do seem to have reached a pessimistic assessment and this appears to be based mainly on the assumption that weakness in the US and Europe will flow through to Australia," Dr Battellino said.
He told the conference the present situation has some similarities to that in 2003.
"From late 2002 to the third quarter of 2003, financial markets were pricing in cuts in interest rates in Australia, largely on the back of concerns about the sluggishness of the US recovery at that time.
"In the event, however, that sluggishness in the United States did not flow through to the Australian economy and Australian interest rates did not fall."
Would he had made the same comments if the speech was 24 hours later after the big sell off on Thursday?
And then there was the speech in Sydney on Australia’s recent savings trends by the head of the RBA’s economics department, Dr Phillip Lowe in which he provided the first detailed commentary on the recently released household expenditure survey which is done every six years and asks around 10,000 households for detailed information on their spending on some 600 items.
Thanks to the concentration on the rise in savings levels in Australia (10.5% in the June quarter), much of the commentary about the tough retailing conditions has focused on this and not on what consumers actually spend their money on.
Dr Lowe pointed out that are "significant changes in saving and spending patterns taking place in Australia".
"The effects of these changes are probably most pronounced in the retail sector, with both increased saving and the switch towards services lessening growth in spending on goods.
"As a result, conditions are quite difficult for many retailers.
"The increased household saving is, however, a positive development from a national risk-management perspective.
"Households are using some of their income growth to build up bigger financial buffers, and this should hold them in good stead in the uncertain world in which we live.
"These higher saving rates are likely to be quite persistent and they represent a return to more traditional patterns."
And the changes in spending from the latest survey of households produced two changes which stand out and which are impacting directly on local retailers.
"The first is the significant rise over time in the share of total expenditure on housing.
"When the Household Expenditure Survey was conducted in the early 1980s, housing accounted for a little less than 13 per cent of total expenditure.
"By way of contrast, in the recent survey this share had increased to 18 per cent.
"This is the largest change in any single expenditure category. The bulk of this change took place over the past decade and largely reflects the rise in interest payments on mortgage debt due to higher levels of debt relative to income.
"The second longer-term change is a decline in the share of spending on goods and an increase in the share of spending on (non-housing) services.
"For example, in the early 1980s, spending on clothing, footwear, household equipment and furniture totalled around 14 per cent of total household expenditure.
"Today, the figure is just over 8 per cent.
"In contrast, there have been substantial rises in the shares of total expenditure accounted for by health, education and a range of household and personal services.
"While these increases are partly explained by a rise in the relative prices of many of these services, the volume of consumption of these services has also increased.
"The decline in the share of spending on clothing and footwear, for example, is evident across all income groups.
"Conversely, households in all income quintiles are spending a higher share on services, with the largest increases evident in expenditure on recreation services, such as pay TV and the i
