Wealth ‘Destruction’ Hurting Australian Consumer Spending

Australia’s drop in household wealth since 2007 is to blame for weak consumer sentiment, said Richard Goyder, managing director of Wesfarmers Ltd. (WES), the nation’s biggest private employer.

The decline in Australian house prices and retirement funds in the past five years, as well as economic turmoil in the U.S. and Europe, had given households a “window on a more uncertain world” and made them more reluctant to spend money, he said in an interview in Sydney yesterday.

“There’s been a really big destruction of wealth since 2007,” Goyder said. “If they’ve got an opportunity, people are saving more money.”

Ebbing consumer confidence and declining prices prompted rival retailer Myer Holdings Ltd. (MYR), the country’s largest listed department store company, to forecast a 15 percent decline in net income in the year through July. Instead of spending, Australian households are saving money at more than twice the rate of their U.S. counterparts. Consumer sentiment has recorded a negative reading in eight of the past 11 months.

“People are looking on a very regular basis at their superannuation statements, reading headlines about what their houses are worth,” Goyder said, referring to the retirement funds held by all Australian employees. “People are more cautious, understandably more cautious.”

Still, Australia’s unemployment rate is one of the lowest among major economies and interest rates have been cut by a percentage point since November.

Falling Rates

Wesfarmers shares rose 0.9 percent to A$29.20 at 10:51 a.m. in Sydney today, while the benchmark S&P/ASX 200 index declined 1.1 percent.

The retailer, Australia’s second-largest, also owns chemicals companies, coal mines and an insurer.

Goyder on April 29 called on the Reserve Bank of Australia to cut interest rates at its May 1 meeting. The central bank this month lowered the overnight cash rate target to 3.75 percent from 4.25 percent, the deepest cut in three years.

The step by the central bank came as growth in China slowed more sharply than some had expected.

Chinese demand for Australia’s resources including coal and iron ore had helped ensure the country was the only major developed economy to avoid a recession in the wake of the 2008 financial crisis.

Australian consumer sentiment hit its third-highest level on record in January 2010, amid lackluster growth in other rich countries and 75 basis points of interest rate increases from the country’s central bank.

Retail Slump

The outperformance has faded. Australian retail sales unexpectedly fell in April for the first time in 10 months, dropping 0.2 percent from a month earlier to A$21.2 billion ($20.7 billion), according to the Australian Bureau of Statistics.

Australian house prices declined in the three months through March in the longest losing streak in at least a decade.

An index measuring prices for established houses in eight major cities dropped 1.1 percent last quarter from the previous three months, when it fell a revised 0.7 percent, the Australian Bureau of Statistics said in a May 1 report.

Wesfarmer’s bigger competitor Woolworths Ltd. (WOW) has said it intends to sell its Dick Smith electronics division and close about 100 of its outlets to focus on the grocery business.

Dick Smith was in a “very challenged area” where competition from overseas was hurting profitability, Goyder said.

Final bids for the chain are due June 1, the Australian Financial Review newspaper reported yesterday, without saying where it got the information.

Goyder had previously said he was open to offers for Wesfarmers’ mines after last year agreeing to sell its Premier coal assets to Yancoal Australia Ltd.

There has been a “relative lack of approaches” for Wesfarmers’ Curragh coal mine, one of the world’s largest producers of coal used to make steel, Goyder said.

“We’ve had very few concrete proposals, if any” for the mine, he said.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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Wealth Destruction Makes Australian Consumers Save, Goyder Says

Brendon Thorne/Bloomberg

Richard Goyder, chief executive officer and managing director of Wesfarmers Ltd., poses for a photograph in Sydney, Australia.

Richard Goyder, chief executive officer and managing director of Wesfarmers Ltd., poses for a photograph in Sydney, Australia. Photographer: Brendon Thorne/Bloomberg