What's 2005 look like for consumers

The Melbourne Age has reported the following today as an idication of what we can look forward to in 2005
"Consumers will continue to tighten their belts this year, as rising interest rates and high petrol prices force households to get their finances in order.
After several years of unrestrained spending, Australian households began to cut back on expenditure halfway through last year, a trend that is expected to continue in 2005.
The Reserve Bank of Australia (RBA) said last week that while households were generally reporting their finances were in good shape, they appeared to have taken a slightly more cautious approach to their finances over 2004.
It said the national accounts suggested that in the second half of the year, real consumption spending grew at an annualised rate of three per cent, well down on the seven per cent pace recorded over the same period in 2003.
Commonwealth Securities senior analyst Craig James said people had been spending quite freely over recent years, and that at some point in time they had to pause for breath.
"Consumers have been hit by a whole range of negative factors in the last couple of months - higher interest rates, higher health fund premiums, higher petrol prices - so that has taken its toll," he said.
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"And it's therefore quite reasonable that consumers are now choosing to get their finances in order, pay down their credit cards debts, refinance loans, as well as consolidate existing debts."
However the fundamental supports for spending - wages, employment and wealth levels - remained very solid, Mr James said.
"So while we may see some below-trend growth over the next few months, the longer term outlook is more encouraging."
Challengernomics head of investment market strategy Ron Woods said things had been relatively dire on the spending front for a while.
"If you've been used to a period where your house price ever goes up at spectacular rates and you feel very wealthy as a consequence... when that's suddenly deprived, you think you're headed for the poorhouse," he said.
"And the first reaction is to cut back on lots of things."
However many people were addicted to their spending habits and would be reluctant to do this, he said.
Dr Woods said this concern about declining wealth levels explained the recent slump in consumer sentiment figures.
This month the Westpac/Melbourne Institute index of consumer sentiment recorded its largest percentage fall in the history of the survey, following the RBA's decision to raise interest rates by a quarter percentage point to 5.50 per cent.
Dr Woods expected consumers to remain cautious in their spending this year amid a downturn in employment, as job losses escalated in the slowing housing market.
However analysts said the downturn in consumption was not likely to be a large one.
UBS retail analyst Michael Peet said there was more likely to be a soft landing than a major slowdown.
"We think clearly the staple categories like food and basic apparel will get through that relatively unscathed," he said.
"The areas that might get hit a bit harder are things like households goods, homewares and bigger ticket purchases which are going to be the ones people delay or do without over the next six to nine months."
He said general retail sales were likely to slow from around five to six per cent back to around three per cent, at an annualised rate."

Now is the best time to work out what your finances look like and how they work. As a famous saying goes: If you don't know where you're going , any road will get you there!"

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