Industry super fund-owned bank ME has said that the Reserve Bank of Australia may still cut official cash rates later this year to address “low income growth and low job availability combined with high levels of job insecurity and underemployment”.
While RBA governor Philip Lowe stated on Tuesday that the cash rate for February would remain on hold at its record-low level of 1.5 per cent, he noted that while GDP was “weaker than expected in the September  quarter, “a return to reasonable growth is expected in the December quarter”.
He added that the labour market indicators “continue to be mixed” (with “considerable variation” in employment outcomes across the country) and noted that unemployment has “moved a little higher recently” but said that “forward-looking indicators point to continued expansion in employment over the period ahead”.
Taking into account the economic indicators, and having eased monetary policy in 2016, the RBA board judged that “holding the stance of policy unchanged... would be consistent with sustainable growth in the economy and achieving the inflation target over time”.
However, following the release of its latest Household Financial Comfort Report, ME said that the Australian economy “continues to exhibit a number of both cyclical and structural challenges mainly related to the labour market and so the non-consensus case for further official rate cuts bears close monitoring”.
According to ME’s biannual report, the 1,500 Australians surveyed by DBM Consultants in December 2016 reported their lowest level of ‘comfort with income’ since the report began in 2011, coming in at a figure of 5.55 out of 10.
A record-low 32 per cent of households reported ‘income gains’ over the past year – down from the corresponding figure of 38 per cent 12 months ago, while 27 per cent said they experienced an “income cut” over 2016.
The was also a record high (34 per cent) of people reporting insecurity, with more than half (56 per cent) saying they would “struggle to find a new job within two months if they became unemployed”, an increase of three points over the past year. Only 37 per cent said it would be ‘easy to find a job’, down three points in the past 12 months.
Renters struggling more than home owners and retirees
While the report found that single parents felt they had the lowest levels of financial comfort (4.34 out of 10), retirees were increasingly comfortable – with levels rising 8 per cent in the year to 6.23 out of 10.
ME has attributed this to “the current majority of retirees not being faced with pending superannuation and pension changes, and having ridden the continued wave of growth in the property market and renewed strength in equity markets”.
On the other end of the scale, the household financial comfort of ‘renters’ remained significantly lower than the comfort of householders ‘paying off their mortgage’ (4.43 compared to 5.31) and those that own their home outright (6.43).
The report found that the divergence in linear terms is widening, despite some rental costs going down due to an oversupply of apartments in some cities.
ME suggested that while ‘renters’ tended to have lower comfort across all key drivers, it may also be a reflection of “the difficulty first home buyers are experiencing getting into the residential property market”.
It explained: “House prices are growing faster than incomes, particularly in some of the major capital cities, and both changes to prudential arrangements and a tightening of bank lending standards have lowered borrowing capacity, despite relatively low interest rates on residential mortgages. Lenders have also begun to pass on to borrowers the higher costs of wholesale funding as medium to long-term yields rose during the past six months.”
ME also suggested that while aggregate household financial stress indicators (such as housing and other loans in arrears and property possessions) are “low generally”, they are “rising and disparate”.
Consulting economist and report co-author Jeff Oughton concluded: “We’re seeing a shift in the composition of jobs as the economy moves away from mining and manufacturing with many employees leaving longer-term jobs and taking up lower-paying less-permanent jobs, which is having a negative impact on their financial comfort.
“ABS data shows wage growth at historical lows over the past two years to the September quarter. ME’s Report supports this, highlighting low wage growth continued in the whole of 2016 and is causing financial discomfort for many households, exacerbated by job insecurity and underemployment.”