Almost 40 per cent of Australian mortgage customers did not add to their savings in the last year, according to new Morgan Stanley research, and 14 per cent spent more than they earned.

Surprisingly, non-investor interest-only borrowers, who tend to make lower repayments than principal and interest mortgage holders, recorded a significantly weaker savings rate than other borrowers.

"Interest-only borrowers are saving less, even though their mortgage payments are around 40 per cent lower than those on principal and interest," Morgan Stanley analysts, led by Richard Wiles, said.

"This gap is most pronounced for owner occupiers, where 52 per cent on interest only are not saving versus 36 per cent on principal and interest."

Rising utility bills and mortgage rates have helped wash consumers with worry, says NAB chief economist Alan Oster.

"After you pay your mortgage, after you pay your utilities, transport, all that sort of stuff, you often don't have a lot left and you're not inclined to go out and spend a great deal on things you don't necessarily need," Mr Oster told Domain. "That's what's really happening."

Simply put, Australians are increasingly frugal with their discretionary spending, but because unavoidable spending on things like the mortgage and electricity bills are on the rise, little relief is seen within the household budget.

As consumers grow increasingly concerned about their bottom line, a cloud is forming over the broader economy, and has Morgan Stanley analysts taking a negative stance on Australia's big four bank earnings in 2018-19.

"Our survey points to a slowdown in deposit growth, while our Macro+ team believes that households face the twin challenge of higher household expenses and rising mortgage rates," Morgan Stanley analysts said.

"Combined with falling incomes, cost of living inflation and credit rationing, our Macro+ team expects consumer spending to slow down."

The problem is that consumer spending is already weak.

(Source: NAB Cashless Retail Sales Index September 2017)

Cashless retail sales figures showed a rebound in September, according to NAB's monthly index, but researchers note "there has been a clear slowing over the past three months".

When asked if the numbers were weaker than he would have hoped at this time of year, Mr Oster told Domain "the short answer is yes".

"It means that the consumer is soft," he said.

"That's why you hear people talking about the importance of getting wage growth going."

And unfortunately the wages picture isn't looking particularly strong either.

"It's slow growth. Everyone says unemployment matters, but it sort of doesn't in this equation," says Mr Oster.

"What matters is underutilisation of labour. That's really important. You've got low productivity, which means people aren't prepared to give wage increases in that sort of environment, you've got inflationary expectations that are not high. You can explain a lot of the reduction in wages using those combinations.

"Not that many of them are going to get much better in the next six to 12 months."

While big bank balance sheets look "resilient" in the near term, according to Morgan Stanley, the analysts expect a challenging 2018-19 for Australia's biggest lenders.

The analysts note "a weaker domestic economic cycle, re-emerging headwinds to margins, fundamental change in the mortgage market, increased political and regulatory scrutiny, and an increase in non-housing loss rates".

"We expect structural and cyclical headwinds to return on equity and growth to drive a further de-rating."