He believed a low savings rate was consistent “with forward-looking households becoming more optimistic and confident about the income outlook”.
Deciphering the fall in savings has troubled economists because it is happening at the same time as house prices correct and borrowers shift from interest-only to principal and interest loans.
Nomura economist Andrew Ticehurst said: “I think we need to interpret the low household savings rate carefully. It’s not clear whether this reflects an attempt of consumers to maintain living standards in an environment of low wage growth or if it represents confidence in the labour market.”
Mr Ticehurst also said that the ABS measures household savings as the difference between income and consumption. The result is that “very modest revisions to income and consumption estimates can cause the savings rate to swing around quite wildly,” he explained.
Goldman’s Mr Boak said there had been a structural decline in the household savings rate, particularly between 1980 and 2000. According to the broker, this has been driven by deregulation of the financial sector, an ageing population, structurally lower inflation and anchored low inflation expectations. His report highlighted that over a longer timeline, the current savings rate was not unusual.
Goldman expects the household savings ratio to move sideways, maintaining a positive level.
from A Viral Update https://ift.tt/2Buq672
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