Conservative consumers dampen business prospects

Small businesses may see a dampening in retail activity over the next quarter as consumers continue to embrace financial conservatism amid the current period of moderate economic growth, with almost half of consumers less likely to spend money on non-essential items such as entertainment and beauty treatments. Moreover, nearly one-third of people are more likely to save money than compared with the same time last year.

These are some of the findings from Dun & Bradstreet's latest Consumer Credit Expectations Survey, which measures expectations for savings, credit usage, spending and debt performance in the March quarter 2013. Findings also indicate that nearly one in two people (49 per cent) are concerned about their financial position, with expectations that stress levels will remain elevated for at least the first quarter of the year.

Furthermore, expectations for household debt are at their lowest point in three years, with 18 per cent of respondents anticipating their debt will increase in the March quarter - compares to 22 per cent and 26 per cent for the past two quarters.

Expectations of lower debt levels, coupled with reduced expectations of spending, suggest a shift in financial priorities away from discretionary spending and towards more prudent debt management as consumers maintain a cautious outlook.

Dun & Bradstreet's CEO, Gareth Jones, says that the latest survey reflects a changing attitude from consumers towards debt which is consistent with the cautious mood of the economy.

"Overall, we've witnessed a sizeable shift in the spending behaviour of the Australian consumer. There is a greater degree of consideration being applied to each spending decision and a greater focus on spending within our means," Mr Jones said.

"This attitude towards spending, especially on discretionary items, can have a negative knock-on effect for Australian businesses; something that has been revealed in the latest ABS retail figures, which showed only modest activity, and also in the lower sales expectations from our recent Business Expectations Survey.

"The upside to this ongoing mood of consumer conservatism is that we may see an improvement in the levels of personal debt and delinquency, which should help those households experiencing financial stress," he added.

The trend suggests that consumers may be better managing their financial position to fit the economic conditions, and that the RBA's interest rate cuts throughout last year may be assisting consumers to address their debts .Correspondingly, 55 per cent of Australians don't expect to have difficulty meeting their credit obligations in the next three months; an improvement compared to 48 per cent in the September 2012 quarter.

Despite this, the number of Australians indicating financial concern remains relatively high. The associated subdued consumer confidence this brings - and the spending activity and cash flow impact this has on businesses - continues to create headwinds for an economic recovery.

According to Stephen Koukoulas, Dun & Bradstreet's Economic Advisor, consumers are still reacting to the effects of the GFC.

"Consumers appear to be paying down debt in an orderly manner, limiting the extent to which additional debt is accrued and, from what we can see in the official data, building their savings," Mr Koukoulas said.

"While this is likely to be dampening economic growth for the moment, it is ensuring consumers are more secure in the medium term in the event of an unforeseen slowdown.

"If there is no slowdown in the next year or two the current financial circumstances of consumers suggests they will be well placed to underpin ongoing strong growth in consumption and other spending," he added.


*This national survey was conducted online by Newspoll in January 2013 among 1,218 respondents aged 18-64 years, to reflect the upcoming March 2013 quarter.

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