November 21st, 2024

Household spending surpasses income as net worth drops by $47 billion

New Zealand households report negative savings and declining net worth amid rising expenses and stagnant income growth, Stats NZ data shows

Net worth has fluctuated due to shifting asset values, particularly in property and investment holdings.
Net worth has fluctuated due to shifting asset values, particularly in property and investment holdings.

New Zealand households spent more than they earned in the June 2024 quarter, with savings dipping into negative territory at -$479 million, according to Stats NZ data released last month. This marked a period of increasing spending, declining income, and falling net worth for households across the country.

The big picture: Spending up, income down

  • Household spending increase: Seasonally adjusted household spending climbed by 1.0% to reach $60 billion in the June 2024 quarter, driven largely by increased spending on services and non-durable goods, such as groceries. This trend was slightly offset by a reduction in purchases of durable goods, like motor vehicles.

  • Disposable income drops: Net disposable income, which reflects earnings after accounting for taxes and transfers, declined by 0.9% to $59 billion. This fall was the first drop in total household income since Stats NZ began tracking this data in 2016.

  • Savings decline: With household spending exceeding net income, savings fell to -$479 million, highlighting a shift towards spending that outpaces income growth.

Income trends and slowing wage growth

According to Stats NZ, wage and salary growth in the June 2024 quarter rose just 0.8%, significantly slower than the 2.1% average quarterly growth rate seen from December 2021 through March 2024. This slower wage growth, coupled with rising spending, put further pressure on household budgets.

Household net worth plunges as asset values fall

Household net worth, a measure of the total assets owned by households minus their liabilities, fell by 2.0%, a $47 billion decline from the previous quarter. This decrease followed three consecutive quarters of gains.

  • Decline in property values: Among household assets, the value of owner-occupied property dropped by $21 billion, or 1.8%, in the June quarter, reflecting softer demand in the housing market.

  • Investment losses: Equity and investment fund shares also recorded a notable decrease of $27 billion, down 2.6% as market fluctuations weighed on financial assets.

  • Liabilities continue to rise: Total household financial liabilities increased by 0.7%, driven by a 0.9% rise in housing loans. However, this was partially offset by declines in consumer loans, which dropped by 1.2%, and student loans, down 0.7%.

Examining trends since 2017

An analysis of household consumption and income data since 2017 reveals a persistent trend of rising expenditure outpacing income growth, with few exceptions:

  • Historical highs in spending and income: Between 2017 and mid-2023, household final consumption expenditure grew from $40.1 billion to $57.9 billion, reflecting a general increase in household spending capacity. Net disposable income also rose over this period, but has recently declined from a peak of $59.7 billion in March 2024 to $59.2 billion in June 2024.

  • Quarterly net worth volatility: Household net worth showed steady growth until 2021, peaking at $2.4 trillion. Since then, however, net worth has fluctuated due to shifting asset values, particularly in property and investment holdings.