Nice set of figures should shut up the gloomsters

Something strange is happening to the Australian psyche at present. A lot of people are feeling down about the economy. They're convinced it's pretty weak, and any bit of bad news gets a lot of attention.

But most of the objective evidence we get about the state of the economy says it is, under the circumstances, surprisingly strong. Consider the national accounts we got this week.

They show the economy - real gross domestic product - grew by 1 per cent in the September quarter, more than most economists were expecting. And not only that, the Bureau of Statistics went back over recent history, revising up the figures.

Originally we were told the economy grew by a rapid 1.2 per cent in the June quarter, but now we're told it grew by an even faster 1.4 per cent. Originally we were told the economy contracted by 1.2 per cent in the March quarter because of the Queensland floods and cyclone, but now we're told the contraction was only 0.7 per cent.

Those figures hardly fit with all the gloominess. So how fast is the economy travelling, on the latest numbers? We're told it grew by 2.5 per cent over the year to September, but that figure includes the once-off contraction in the March quarter, which is now ancient history.

We could do it the American way and say we grew at an ''annualised rate'' of 4 per cent in the September quarter (roughly, 1 per cent x 4), but that's too high because this quarter (and the previous one) includes a bit of ''payback'' (or, if you like, catch-up) as the Queensland economy got back to normal after its extreme weather.

(There's likely to be more catch-up in the present quarter as the Queensland coalmines finally pump out all the water and resume their normal level of exports, suggesting the Reserve Bank is reasonably safe to achieve its forecast of 2.75 per cent growth over the year to December.)

So the best assessment is that at present the economy is growing at about its ''trend'' (long-term average) rate of 3.25 per cent a year. If so, everything's about normal.

Ah yes, say the gloomsters, but all the growth's coming from the mining boom. Before we check that claim, let's just think about it. If we were viewing our economy in comparison with virtually every other developed economy, we'd be thanking our lucky stars for the mining boom.

But not us; not in our present mood. We're feeling sorry for ourselves because, for most of us, the benefits of the boom come to us only indirectly. (The other thing we ought to be thankful for apart from our luck is 20 years of clearly superior management of our economy. In stark contrast to Europe and the US, we have well-regulated banks and stuff-all public debt.)

It's true the greatest single contributor to growth in the September quarter was the boom in investment in new mines. New engineering construction surged 31 per cent in the quarter and total business investment spending rose by almost 13 per cent.

But though most of that remarkable boost is explained by mining, there was also a healthy increase in manufacturing investment.

And here's a point some people have missed: the second biggest contribution to growth in the September quarter (a contribution of 0.7 percentage points) came from the allegedly cautious consumer.

Consumer spending grew by 1.2 per cent in the quarter and by 3.8 per cent over the year to September. That's actually above its long-term trend. And consumer spending was strong in all the states, ranging from rises of 0.8 per cent in Victoria, 0.9 per cent in Western Australia (note) and 1.1 per cent in NSW, to 1.9 per cent in Queensland (more catch-up).

Although households are now saving about 10 per cent of their disposable incomes, this saving rate has been reasonably steady for the past nine months. So consumer spending is growing quite strongly because household income is growing quite strongly.

It's noteworthy that, according to Treasury, non-mining profits rose by 4.7 per cent in the quarter. And according to Kieran Davies, of the Royal Bank of Scotland, non-mining GDP grew by a solid 0.7 per cent in the quarter, just a fraction below trend.

So the notion that mining (and WA and Queensland) might be doing fine but everything else is as flat as a tack is mistaken. It's true, however, that some industries are doing it tough. Consumers are spending at a normal rate, but their spending has shifted from clothing and footwear and department stores to restaurants, overseas travel and other services.

Home-building activity declined during the quarter - a bad sign. The continuing withdrawal of the earlier budgetary stimulus meant that government spending fell by 2.5 per cent during the quarter. Public spending was a drag on growth in all states bar WA and Queensland (more catch-up).

Our terms of trade - export prices relative to import prices - improved by 2.7 per cent in the quarter (and by 13 per cent over the year to September) to be their best on record. But that's likely to be the peak, with key export prices falling somewhat in the present quarter.

The volume of exports rose by 2 per cent in the quarter, but the volume of imports rose by 4.3 per cent, mainly because of imports of capital equipment. So ''net exports'' (exports minus imports) subtracted 0.6 percentage points from overall growth in real GDP during the quarter.

Ah yes, say the gloomsters, but all this is old news - the September quarter ended more than two months ago. The economy must have slowed since then. After all, look at this week's news of a rise in the unemployment rate to 5.3 per cent in November.

It does seem true the labour market isn't as strong as the strength of economic activity would lead us to expect. This could indicate a degree of caution on the part of employers. But the rise in unemployment is slow and small, and if it's only up to 5.3 per cent we're still doing very well by the standard of the past 20 years.

As for the tempting line that everything's gone bad since the strong growth in the September quarter, just remember: that's what the gloomsters said when they saw the good growth figures for the previous quarter. Turned out to be dead wrong.

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Thrift paying big dividends on current accounts

The nation's econocrats have been pondering the resources boom for years, but one thing they've been expecting isn't coming to pass: we're not getting huge deficits on the current account of the balance of payments.

Last week's figures showed a deficit of just $5.3 billion for the June quarter, about half what it was in the March quarter. This included a surplus on the balance of (international) trade in goods and services of

$7.5 billion - the fifth quarterly surplus in a row - offset by a deficit on net income payments (our payments of interest and dividends to foreigners less their payments to us) of $12.8 billion.

Switching to the year to June, the current account deficit was $33.6 billion, down from $53.3 billion the year before. Expressed as a proportion of gross domestic product, this was an amazingly low 2.4 per cent, down from 4.1 per cent the year before.

So why were the econocrats expecting bigger deficits? Because most of the money to finance the surge of investment in new mines and natural gas facilities would have to come from foreigners, thereby adding to the surplus on the capital account of the balance of payments which, with a floating currency, is always exactly balanced by a deficit on the current account.

And why haven't the big deficits come to pass? Because household saving has been a lot greater than the econocrats were expecting. The more the nation saves, the less it has to call on the savings of foreigners to finance its investment spending.

Last financial year's current account deficit is down because saving is up while the mining investment boom is only just getting started.

As that boom gets under way, the current account deficit is likely to grow. This year's budget forecast a deficit of 4 per cent of GDP for this financial year, rising to 5.25 per cent in 2012-13. Even so, those figures are smaller than the econocrats had been expecting before they realised how much more households were saving.

Last week's national accounts showed households saving a net (that is, after allowing for the year's depreciation in the value of household assets) 10.5 per cent of household disposable income. This is unlikely to be an aberration; it's more likely to be a reversion to our earlier thrifty habits.

If you're more used to thinking about the current account deficit in terms of exports and imports, I should explain that these days economists tend to look on the other side of the coin, which shows saving and investment.

The current account deficit equals the capital account surplus, which represents the net inflow of foreign financial capital to the Australian economy. As we've seen, we call on the savings of foreigners to finance that part of our investment in new physical capital than can't be financed by our own saving.

This net inflow of foreign financial capital allows us to import more goods and services than we export, including imports of capital equipment.

The net capital inflow also helps us finance our net payments of interest on the nation's net foreign debt and our net payments of dividends on net foreign equity investment in Australia's businesses - though the ultimate justification for our foreign borrowing is the profits we make from our physical investments.

The nation's annual investment spending includes not just business investment in equipment and structures, but also public investment in infrastructure and households' investment in the construction of new homes.

Similarly, the nation's annual saving includes not just the amount saved by households, but also the saving companies do when they retain part of their after-tax profits rather than paying them all out in dividends and the saving governments do when they raise more in revenue than they need to cover their recurrent spending.

According to an article in the federal Treasury's latest Economic Roundup, in the decade or so before the first stage of the mining boom began in 2003, the current account averaged 3.7 per cent of GDP. During the first stage it averaged 5.7 per cent, but since the global financial crisis it's averaged 3.3 per cent.

Before the mining boom, gross national investment spending (that is, before allowing for the annual depreciation of assets) averaged 24.3 per cent of GDP. Since the start of the mining boom it's averaged 27.9 per cent.

Had the level of gross national saving stayed unchanged, that would have increased the average current account deficit by 3.6 percentage points. In fact, national saving has increased from 22.2 per cent to 24.5 per cent.

While households have been saving a lot more in the period since the global financial crisis, federal and state governments have fallen into operating deficit, meaning they've gone from saving to dissaving. As they get their budgets back to operating surplus in the next year or two they'll be adding to rather than subtracting from national saving.

Company profits have been high in recent years and many companies have been saving a fair bit. Mining companies, in particular, have been reinvesting a lot of their after-tax profits in expanding their activities. (To the extent that those retained earnings are owned by foreign shareholders, and were initially counted in the balance of payments as capital outflows, their reinvestment is counted as foreign capital inflow, even though the actual dollars never left the country.)

Australia's persistent current account deficit has always reflected a high rate of national investment rather than a low rate of national saving. Although our household saving rate was quite low during the decade or so to the mid-noughties, our overall, national rate of saving has been around the average for the developed economies.

Point is, should our current account get a lot bigger in the next few years, it will be because the mining construction boom involves a lot more investment spending, not because we're saving less.

We've done much hand-wringing lately about ''the cautious consumer'' (especially when we imagined consumer spending was weak, which we learnt last week it isn't), but the fact that increased household saving has stopped the strong growth in household income translating into booming consumer spending has some big advantages.

If we can avoid a consumption boom occurring at the same time as an investment boom, the Reserve Bank won't need to increase interest rates as much to control inflation and this, in turn, will avoid adding upward pressure to the Aussie dollar.

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Baby boomers' wealth effect hits the retailers

Back in the early Noughties, when the property market was booming, a lot of baby boomers began contemplating their future and realised they hadn't saved nearly enough to allow them to continue in retirement the privileged lives they'd always enjoyed. They decided they'd have to start saving big time.

So what did they do? Went out and bought a negatively geared investment property, of course. Their notion of saving was to borrow to the hilt, then sit back and wait for the lightly taxed capital gains to roll in.

If you're wondering why the retailers are doing it tough at present, don't blame it all on the mug punters' conviction that Armageddon starts next July 1 with the carbon tax. Part of the explanation rests with the baby boomers learning the hard way that saving actually requires discipline.

Glenn Stevens, governor of the Reserve Bank, has reminded us of the way real consumer spending per person grew significantly faster than household disposable income for the decade to 2005. Over the period our rate of household saving steadily declined until we were actually dis-saving.

And this from a nation that hitherto had saved quite a high proportion of income. Why the change? Well, Stevens is no doubt right to explain it primarily in terms of our return to low inflation and low nominal interest rates, combined with a deregulated banking system now more than eager to lend for housing.

But there has to be more to it. For most of the decade in question we fought each other for the best house in the block, forcing house prices up and up. At much the same time, the sharemarket was rising strongly as we and the rest of the developed world enjoyed the last phase of the over-confident Great Moderation that ended so abruptly with the coming of the global financial crisis.

Over the 35 years to 1995, the nation's real private wealth per person grew at the rate of 2.6 per cent a year, pretty much in line with the growth in real gross domestic product per person.

Over 10 years to 2005, however, real household financial assets (including our superannuation and direct shareholdings) grew by 5.3 per cent a year per person. The corresponding growth in non-financial assets (most of which is the value of our homes) was 7.5 per cent.

Put the two together and our total assets grew by 6.7 per cent a year. (Our debts grew, too, of course. The ratio of debt to total assets rose from 11 per cent in 1995 to 17.5 per cent in 2005.)

So what was it that gave us the confidence during this period to let our consumer spending rip and stop saving any of our household income? One almighty ''wealth effect''. Capital gain was king.

Everywhere we turned we could see ourselves getting wealthier, year after year. The value of our homes rising inexorably, the value of our super swelling nicely. With all that going for us, who needed to save the old-fashioned way? No wonder negative gearing - of share portfolios as well as residential property - was so popular.

As Stevens says, that period of debt-fuelled wealth accumulation had to end sometime. We would come to terms with the new world of lower nominal interest rates and readily available credit, loading ourselves up with as much debt as we needed (or a bit more) and calling it a day.

The recovery in household saving began well before the global financial crisis. Even so, there's no reason to doubt the crisis did much to accelerate our return to rates of household saving - 11.5 per cent at last count - not seen since the 1980s. For one thing, it reversed the wealth effect.

In principle, the behaviour of people of all ages should be affected by the knowledge of what's happening to the market value of their wealth. In practice, however, you'd expect it to have the greatest effect on those approaching retirement - the baby boomers - or even the already retired.

Consider it from their perspective. In the months leading up to and during the global financial crisis of late 2008, they observed it smash the sharemarket and take a huge bite out of their super savings. The market has recovered a fair bit since then but it hasn't regained its earlier peak and could hardly be said to be booming.

As for house prices, the boom is long gone and prices are, in market parlance, ''flat to down''. There's no reason to believe they'll be taking off again any time soon.

Many boomers have responded to this marked change in their prospects by postponing their retirement. A government-funded survey regularly asks workers over 45 when they expect to retire. In 2009, almost 60 per cent were expecting to retire at 65 or later, up from 50 per cent two years earlier.

With little prospect of much in the way of capital gains, it's a safe bet the baby boomers are leading the way in the nation's return to a higher rate of saving.

But that doesn't spell the death of retailing. As a matter of arithmetic, it's only when households are increasing their rate of saving - as they are now - that consumer spending has to grow very much more slowly than household income is growing.

Once households have reached a rate of saving they're happy with - no matter how high that rate - consumption can resume growing at the same rate as income.

But who knows? It may not be until the second half of next year that the punters - including the baby boomers - realise how much Tony Abbott & Co conned them about the depredations of the carbon tax.

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Putting away dollars makes sense once again

Our top econocrats make a lot more speeches these days, but sometimes they say things that represent a clear advance in our understanding of what's happening with that mysterious animal we call the economy. Glenn Stevens, governor of the Reserve Bank, gave such a speech this week.

One device economists use to get a handle on economic developments is to distinguish between those that are ''cyclical'' and those that are ''structural''. Cyclical developments are a product of the economy's present position in its eternal movement through the business cycle of boom and bust. That is, they may be important now, but they won't last.

Structural developments, by contrast, come from deeper, underlying and long-running economic and social forces. They usually move more slowly, but they're more permanent.

The main message the econocrats have been trying to get to us is that the present resources boom isn't just another short-lived commodity boom but is bringing about a long-lasting change in the structure of our economy.

But this week Stevens identified a quite different structural change occurring at the same time as the mining construction boom. We're in the middle of a profound shift in the attitudes of Australian households towards how much of their income they spend on consumption and how much they save.

For many years households used to save a high proportion of their disposable incomes: 10, 12 even 15 per cent. Taking all households together, their mortgage and other debt stood at less than 50 per cent of annual household disposable income. Everyone's ambition was to pay off their mortgage as early as possible.

But, as Stevens points out, all that started to change in the mid-1990s. Over the 10 years to 2005, the trend rate of growth in real household disposable income (here, meaning income after tax and net interest payments) was 2 per cent a year per person. That's a very healthy rate of income growth - more than double the rate seen in the previous two decades.

Even so, household consumption spending grew over the same period at the even faster real, per-person rate of 2.8 per cent a year. How can our spending grow at a faster rate than our income? By us steadily cutting the rate of our saving.

We even got to the point where our consumption spending exceeded our income. How is that possible? By ''dissaving'' - running down past savings or by borrowing.

But from about 2005, before the global financial crisis in late 2008, all that began changing.

Over the five years to the end of 2010, real household disposable income per person grew at the even faster rate of 2.9 per cent. Why? Because of the flow through the economy of the very much higher export prices we've been getting.

But here's the thing: as our rate of income growth has accelerated, our rate of consumer spending has slowed down. In per-person terms, real consumption today is no higher than it was three years ago.

So what's changed? We've stopped saving less and started saving more. Why? Well, it's obviously not primarily because we're worried about higher interest rates, the risk of problems in Europe and America causing another global financial crisis or we're all afraid the world will end when the carbon tax starts next July.

Those worries are clearly part of the present, short-term, cyclical explanation for our caution as consumers, but they can't explain a structural trend that began about six years ago.

For that you have to look deeper. As we've seen, it's possible for your spending to grow faster than your income for a protracted period as you run down past savings and borrow. But you can't keep doing it forever. Eventually, your debts get so great that you (or your bankers) call a halt.

You realise having so much debt is dangerous, so you hold back your spending and increase your saving - often by paying off some of the debt. The ratio of household debt to annual disposable income shot up to about 150 per cent, but in the past few years it's levelled off.

The point to realise is that this new trend represents a return to normal behaviour after a protracted period of abnormal behaviour. We used to save 10 or 12 per cent of our incomes, and now we've got back to saving that much. We used to want to pay off our mortgage ASAP, and now we're back to wanting that to.

What happened in the middle was households making a protracted but essentially once-only adjustment to two major developments: financial deregulation, which made banks much keener to lend to households using newer, more flexible deals, and the return to low inflation and low nominal interest rates, which allowed people to borrow a lot more for the same monthly payments.

With hindsight it's clear we'd long wanted to spend more on better housing so, when the opportunity arose, we did. In the process of everyone wanting to move to a better house at pretty much the same time, however, we greatly bid up the price of houses and acquired a lot of debt.

But now we've adjusted to the new world of lower interest rates and higher levels of debt. We're not getting in any deeper, so have moved back to more normal levels of saving.

While we were watching the value of our homes going up and up we felt richer and so didn't feel we needed to save from our incomes. We stepped up our consumption. But now house prices have levelled off and so we've held back our consumption and returned to saving for the future the normal way.

Point is, the period of consumption spending growing faster than income has ended and is unlikely to return. At present, our efforts to increase our rate of saving mean consumption is growing a lot more slowly than our income is growing.

But as soon as we get our rate of saving back to where we want it to be, we can maintain that rate while consumer spending returns to growing at the same speed as income. With the saving rate already back to 11 per cent, you'd think we must be pretty close to reaching that point. If so, consumer spending could resume a reasonable rate of growth once our present short-term worries lift.

Message for retailers: the party times will never return, but the present tough times won't last.

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Surge in savings masks current account rise

One little-noticed consequence of the resources boom has been a big rise in the current account deficit on our balance of payments with the rest of the world. But when we get the latest figures on Tuesday we're unlikely to see any evidence of that. Why not? Because of the surge in household saving.

The current account deficit occurs because our imports and payments of interest and dividends to the rest of the world almost always exceed our exports and receipts of interest and dividends from the rest of the world.

Over the past 30 years the current account deficit has averaged about 4 per cent of gross domestic product. Since the start of the resources boom in 2003-04, however, the current account deficit has been nearer 5 or 6 per cent of GDP.

You might expect that, with the resources boom meaning the world is paying us much higher prices for our exports of coal and iron ore, the current account deficit would be smaller rather than larger. But it hasn't worked out that way.

Why not? Because the higher export prices represent an increase in the nation's real income, and when that extra income is spent by individuals and firms, much of the additional spending goes on imports.

But it's always easier to see the factors driving the current account deficit if we explain it in terms of saving and investment rather than exports and imports.

How is it possible for us to go on year after year having our recurrent payments to the rest of the world exceeding our recurrent receipts? It's possible only if we can cover the difference by having someone in the rest of the world lend us that difference (or by accepting foreign ''equity'' investment in Australian businesses).

These capital transactions are recorded in the capital account on the balance of payments. So it turns out that if we're running a deficit on the current account this has to be exactly matched by a surplus on the capital account.

And the capital account surplus represents the amount by which the nation's investment in new housing, business plant and structures, and public infrastructure during a period exceeds the nation's saving during that period.

Households save by spending less than all their income on consumption. Companies save by retaining some of their after-tax profits rather than paying them all out as dividends. And governments save when they raise more in taxes than is needed to cover their recurrent spending.

The amount we save pays for the amount we invest. So when a nation's physical investment spending during a period exceeds the amount it has saved during that period - as it always does in Australia - it has to cover the gap by calling on the savings of foreigners.

Looked at this way, the resources boom increases the current account deficit because it leads the mining companies - many of which are foreign-owned - to greatly increase their investment in the construction of new mines, natural gas facilities and so forth.

In the first stage of the resources boom - before the global financial crisis interrupted - there was an increase in national saving, but a greater increase in national investment, thus causing the current account deficit to be 1 or 2 percentage points of GDP higher.

Then there was the period of the crisis - particularly in 2009 - when national saving increased but national investment fell, thus causing the current account deficit to narrow to about 3 per cent.

But now we've got the economy recovering from the mild recession induced by the crisis. We have seen a bit of growth in investment in new housing, stronger growth in companies' investment in ''non-dwelling construction'' (mainly continuing construction of new mines), though no growth in companies' investment in new machinery and equipment, and very strong growth in governments' investment in infrastructure, particularly the state governments.

So national investment spending is up on the crisis period. But national saving is up by more. As we saw in this column last week, the household saving ratio has shot up to 10 per cent of household disposable income (equivalent to about 6 per cent of GDP).

Corporate saving is quite high, as companies use retained earnings to repay debt and improve their gearing. Yet governments have gone from saving to dissaving as their revenues have been hit by the delayed effect of the downturn while their recurrent spending has been swollen by stimulus measures.

Putting these three components together, national saving is well up on what it was before the crisis struck. Whereas gross national saving had coasted along each year at about 20 per cent of GDP (here, ''gross'' means before making a deduction for the annual depreciation in the value of the stock of the nation's physical capital), now it is up to about 25 per cent.

So, though national investment is up a bit on what it was during the crisis, national saving is up a lot - mainly thanks to the remarkable increase in household saving. This suggests the current account deficit, which got down to 3 per cent of GDP during the crisis, has taken a step lower to 2 per cent. It averaged 2 per cent in the June and September quarters of last year and, when we see the balance-of-payments figures on Tuesday and the national accounts on Wednesday, they're likely to show the current account deficit stayed at about 2 per cent in the December quarter.

Two conclusions. First, the fact that the increase in the current account deficit during the noughties occurred because of higher investment rather than reduced saving (which actually increased a bit), suggests that the foreign debt we are racking up is financially sustainable. In the main, we're borrowing from foreigners to expand our capacity to sell more coal, iron ore and natural gas to foreigners.

Second, the expectation that the resumption of the resources boom will lead to many more years of outsized current account deficits arises because we know there's a huge amount of investment in mining construction to come, with much of the funding for that investment coming from foreigners.

But this expectation assumes no change in the nation's saving habits. So to the extent that our households continue saving a lot more of their incomes than they used to, we can have the mining construction boom with lower-than-expected current account deficits and less increase in our foreign debt.

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Urge to splurge fades as savers born again

The punters, pollies and shock jocks who tell us we're groaning under the weight of the rapidly rising cost of living need to answer a question: if so, how come households are managing to save 10 per cent of their disposable income?

It has drawn remarkably little comment, but the household saving ratio - saving as a proportion of household disposable (that is, after-tax) income - is the highest it has been in more than 20 years.

You wonder why the retailers are doing it so tough? That's why. With wage rates increasing and more people in jobs, household income has been growing quite strongly. But in recent years we've been much less inclined to rush out and spend every cent that comes our way.

That's what saving is: the bit that's left over when you don't spend all your income on consumption. In fact, economists define saving as ''deferred consumption''.

Most of us think of saving as putting money in bank accounts. We've been doing more of that lately, but it's not the main way we save. Historically, the main way Australians have saved is by borrowing a shed-load of money to buy a house, then paying it off over the next 25 years. Your savings are embodied in the proportion of the house that's owned by you rather than the bank - your ''equity'' in the house.

The household saving ratio was at 15 per cent in the early 1980s, but then it fell for more than two decades to reach a low point of minus 2 per cent in the early noughties. We were ''dissaving'' - consuming more than we earnt.

How's that possible? By running down past savings or by borrowing.

Since the mid-noughties, however, the saving ratio has shot up to 10 per cent. You could be forgiven for not knowing this because much of the increase has suddenly appeared as a result of the Bureau of Statistics' revisions to the national accounts.

The bureau doesn't measure saving independently, just takes it as the residual when it compares two huge numbers: for household income and for household consumption. So any errors in measuring those two big numbers will be reflected in the figure for saving, making it volatile and subject to revision as better information comes to hand.

Since 2004 household disposable income has grown strongly, averaging 7.3 per cent a year in nominal terms (that is, before allowing for inflation). Over the same period, household consumption has grown by 5.4 per cent a year.

Dr Philip Lowe, an assistant governor of the Reserve Bank, expressed the figures differently in a speech he gave this week. In quite a few of the years during the decade and a half to 2005, household consumption increased by more than a dollar for every extra dollar of household disposable income received.

Since then, however, only about 65¢ in every extra dollar of income has been spent. (Small prize if you realised this measure is that old Keynesian workhorse, the ''marginal propensity to consume''.)

The evidence that something has changed in our attitude to saving can be seen in other indicators. One example comes from the annual survey of Household, Income and Labour Dynamics in Australia.

In the surveys between 2000 and 2005, there was a clear trend of fewer and fewer households with mortgages reporting they were ahead of schedule in their repayments (a way of saving). But this downtrend slowed in about 2005 and then in 2009 - the most recent year for which results are available - there was a marked increase in the share of people saying they were ahead of schedule.

Similarly, over the past couple of years there has been an increase in the proportion of households who say they pay their credit card balance in full each month. It has gone from about 60 per cent to almost 65 per cent.

Then if you look at the Westpac-Melbourne Institute monthly survey of consumers you find there has been a marked increase in the number of households saying the wisest thing to do with their savings is to pay down debt or build up bank deposits.

Correspondingly, there has been a decline in the perceived attractiveness of more risky investments.

A final bit of evidence comes from the estimates of how much equity households are adding to the housing stock. Until the late 1990s, it was normal for the value of newly constructed homes each year to be significantly greater than the increase in the amount we all owed on our housing.

Why? Because, while the people buying the newly-built homes would usually borrow most of the cost of the home, other, established home owners would be trying to pay back their mortgages as quickly as they could (mainly by keeping their monthly mortgage payments higher than the bank's minimum requirement).

In other words, the proportion of the nation's total amount of housing that wasn't owed to banks would increase each year. Economists call this ''equity injection''.

But during the early part of the noughties this changed and the household sector was withdrawing equity. Now here's the point: in recent years things have changed again and we've returned to the usual pattern of increasing equity.

So what's going on? Why did we stop saving and why have we started again? Over the decade to 2005, there was a large run-up in household debt and a related rise in the (gross) value of household assets such as homes and shares, while our rate of saving declined.

This seems to have been a period of adjustment to the fall in nominal interest rates (caused by our return to low inflation) and financial innovation (banks keener to lend for housing, with new products such as home-equity loans and reverse mortgages).

Lower nominal mortgage rates allowed us to borrow more, which many of us did at much the same time, thus bidding up house prices in the process. Some of us even increased our mortgage to pay for an overseas trip.

But it seems this period of adjustment to new possibilities was largely completed by the mid-noughties and we've gone back to our usual preference for paying off the mortgage as soon as we can.

And then this episode of ''structural adjustment'' seems to have been reinforced by the global financial crisis, which has led some households to rethink their spending and borrowing decisions. Some people are a lot more cautious and a lot less sure that house and share prices can only ever go up.

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