RBA Assistant Governor Luci Ellis said in a speech that the disconnect between “apparently weak national accounts” and “noticeably stronger labor market data” can be traced to the “household sector”. In contrast to the positive picture implied by the labor markets, she noted that “growth in household income has been slow”. Besides, “growth in consumption has weakened recently”.
While there were talks of “wealth effects” from fall in house prices on spending, Ellis noted that the link is “a bit more subtle than” simply that rise in wealth boost spending directly. At the same time, fundamentally demand for housing rests on the household sector’s confidence and capacity to take on the financial commitments involved in the purchase or rental of a home. Without enough income, and so without a strong labour market, that confidence and capacity would be in doubt.
Ellis emphasized that “the nexus between labour markets, households and housing are crucial to our assessment of the broader outlook.
