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Forward Thinking Magazine : August 2011
38 BUT THERE IS ALSO A REVOLUTION OCCURRING IN RESPECT TO THE WAY HOUSEHOLDS MANAGE THEIR COLLECTIVE BALANCE SHEETS. IN MANY WAYS, HOUSEHOLDS ARE ADOPTING A MORE CONSERVATIVE LIQUIDITY-RISK MANAGEMENT APPROACH, WHICH IS IN STARK CONTRAST TO THEIR BEHAVIOUR OVER THE PAST DECADE. save In Australia, the conservatism of consumers has seen retail sales languish and the household saving rate rise sharply from zero in 2006 to over 11% in 2011. This indicates that at least some households have the ability to increase spending, but if households have got the money, the question is why aren't they spending it? Of course, this could just be a temporary aberration, and consumer spending could be on the brink of a rapid acceleration. We, however, think that is unlikely. In fact, the caution of consumers is not just evident in less spending and more saving, but also in a range of other indicators, such as steady credit card usage, less margin lending, falling house prices, less housing market turnover and weak mortgage lending. Broad money -- which is a measure of bank liabilities (such as deposits) -- has been growing more rapidly than credit (loans to businesses and households) for the first time in 30 years. In fact, it was only during the very severe early 1990s recession that overall lending growth was weaker than during the recent period. Moreover, if we were to focus on household lending, 2011 would actually have recorded the weakest growth in the 35-year history of the monthly credit data. It appears that Australian households are under- taking a voluntary deleveraging of their balance sheets. And while this is 'voluntary,' it is certainly being encouraged by high interest rates, rising cost pressures for households and tighter fiscal policy. Needless to say, there has been considerable discussion among analysts and policymakers about whether the rise in household savings is a temporary 'cyclical' occurrence or whether it is a long-lasting 'structural' change.