Consumers cut back borrowing

Maybe they have their eyes on next month's election?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 12, 2013 1:15 pm AEST

Consumers are becoming more frugal, refusing to spend their own or borrowed money, after RBA data showed Australian households spent $2.2 billion less in June that in May.

Australians spent $20.3 billion on purchases in June, compared to $22.6 billion the previous month, despite credit limits hitting an all-time high of $139.8 billion. Credit card balances have been relatively stable since December 2010, at around $49 billion.

Repayments on credit cards hit $21.2 billion in June, continuing the theme of consumers paying down debt. In eight of the last twelve months, repayments have been higher than new charges.

Separate data from the Australian Bureau of Statistics (ABS) show personal loans dropped 2.7% in June to $7.8 billion, from $8 billion in May. That suggests that consumers have tightened the purse strings, and are being selective about what they spend their money on. It also contradicts Reserve bank governor Glenn Stevens' view that there are signs of increased demand for finance by households. Unless he means home buyers that is – housing finance commitments for owner-occupied housing rose 2.1% in June.

On the other hand, business and commercial lending surged sharply in June, up 11.5% in seasonally adjusted terms. With businesses lending generally for longer-term periods, it makes sense for business to refinance loans and borrow when interest rates are at all-time lows.

While we have seen consumers being cautious, it hasn't stopped several companies report growing earnings. JB Hi-Fi Limited (ASX:JBH) reported improving like-for-like sales, suggesting the retail environment may be improving. That bodes well for competitor Harvey Norman Holdings (ASX:HVN) when it releases its results later this month.

It could also be good news for furniture retailer Fantastic Holdings (ASX:FAN) and discount variety retailer The Reject Shop (ASX:TRS). Fantastic had a disappointing first six months, but may have been able to turn it around in the second half.

Foolish takeaway

Consumers may have their eyes on next months' election – hoping that it will provide certainty for the next couple of years – which could prompt a surge in household borrowing and spending.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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