No. 3 - Department of Treasury - The Western Australian Government

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Western Australian Economic Summary2006 No.3The index has proven to be highly influenced by interest rate movements,perhaps because the survey is generally taken in the second week of eachmonth, shortly after monthly interest rates adjustments are usuallyannounced. Although Western Australia’s level of consumer sentiment hasbeen significantly higher than Australia’s throughout 2006, the falls inAugust and November could suggest some easing in the levels of consumersentiment going forward.Household FinancesIn its most recent Statement on Monetary Policy, the Reserve Bank of Australianotes that the strength in domestic spending has been broadly reflected inthe demand for finance, with total credit growing by 14% over the year. TheBank also notes that there are signs that this growth may now be starting tomoderate, pointing to a slight slowing in housing finance commitments inrecent months and growth in credit outstanding to the household sectoreasing in the September quarter.National household debt (as a percentage of household disposable income)increased by 3.1 percentage points to 156.9% over the June quarter 2006(Figure 8) 1 and the ratio of interest payments to disposable income rose to11.4%. Debt has increased at a more moderate pace in recent months,suggesting that interest rate rises may be beginning to influence households’borrowing decisions 2 .Figure 8HOUSEHOLD DEBTAs % Household Disposable Income160%140%120%100%80%60%40%20%0%Jun-91 Jun-96 Jun-01 Jun-06PersonalInvestor HousingOwner-Occupied HousingTotalSource: Reserve Bank of Australia1 Source: Reserve Bank of Australia – Table B21, Household Finances, SelectedRatios (%, seasonally adjusted). State level data are not available.2 Interest rates have risen three times in 2006; May, August and November – eachtime by a quarter of a percentage point to take the official cash rate to 6.25% and thestandard variable interest rate to 8.05%. See Price Trends.14 Department of Treasury and Finance
2006 No.3 Western Australian Economic SummaryOther national data released by the RBA indicate that the rate of growth inthe number and value of transactions on credit and charge card accounts hasalso slowed in recent months 1 .At a state level, there is little timely and reliable information on overallhousehold finances. Personal finance data indicate that the value of personalfinance commitments in Western Australia fell by 15.9% between theirJune 2006 peak and September 2006, but were still 27.2% ahead of their levelin September 2005 2 .Bankruptcy data provide an indicator of financial stress 3 . Data from theInsolvency and Trustee Service of Australia showed a 22% increase in thenumber of Western Australian bankruptcies between theSeptember quarters of 2005 and 2006. The magnitude of the rise was mainlybecause of a very low bankruptcy figure for the September quarter 2005 4 .Western Australia’s bankruptcies remain well below their historicalaverage 5 (493 per quarter since September 1991) and are lower per capitathan in any other State.Figure 9BANKRUPTCIES, WA & AUSTRALIAQuarterly, Not Seasonally Adjusted800Western AustraliaAustralia800070070006006000500500040040003003000200200010010000Sep-91 Sep-96 Sep-01 Sep-060WA (LHS)Australia (RHS)Source: Insolvency and Trustees Service Australia1 Source: Reserve Bank of Australia – Credit and Charge Card Statistics – C12 Source: Lending Finance, September 2006, ABS Cat. 5671.0.3 Bankruptcy data tend to be a lagged indicator of household finance stress, as anindividual or household’s financial position could be deteriorating for some timebefore bankruptcy is declared. It should be noted that these numbers include bothindividual and small business bankruptcies.4 Which at the time was the lowest quarterly number since 1990.5 Source: Insolvency and Trustee Service Australia, September quarter 2006.Department of Treasury and Finance 15
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No. 3 - Department of Treasury - The Western Australian Government

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