Consumer sentiment improves, but remains “deeply pessimistic”

Consumer sentiment grew for a second consecutive month, increasing by 5.0% to 84.3 in January 2023, but remains deeply in pessimistic territory. The survey was undertaken in the second week of the new year, following the first Christmas period free from COVID-19 restrictions and in the first month since April 2022 with no increase in the RBA cash rate. While the cash rate was unchanged due to no RBA board meeting in January (rather than an explicit decision to keep rates stable), the brief respite is the likely explanation for the lift in confidence and demonstrates consumers’ continuing sensitivity towards rate rises. Despite the uptick, consumer sentiment is still 17.5% below January 2022.

Heading into 2023, retailers are facing a challenging environment. Headline inflation jumped to 7.3% in November (a 32-year high), reversing the decrease to 6.9% in October 2022. The renewed rise in inflation, coupled with the most recent ABS retail data for November 2022 showing record-breaking seasonally adjusted sales ($35.9 billion, +1.4%), will likely prompt the RBA to raise the cash rate again in February. Consumers will therefore be facing continued cost of living pressure, which will likely result in more circumspect retail spending.

Consumer confidence

• 1 month - 5.0%

• 12 months - (17.5%)

Source: Westpac - Melbourne Institute Consumer Sentiment Index

Consumer sentiment recorded a 5.0% gain in January 2023 to 84.3, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. Consumer sentiment is 17.5% lower than January 2022 (102.2) and around 30% lower than the post-COVID high point in April 2021 (118.8). Sentiment has been in pessimistic territory for 11 consecutive months (March 2022 to January 2023), driven by inflation and interest rate pressures on family finances. March 2022 was the first month the index had fallen into pessimistic territory since September 2020 and was recorded against the backdrop of growing cost of living concerns and other key disruptors, including Russia’s invasion of Ukraine and the flooding event on the Eastern Seaboard. Continuing and growing cost of living pressures and rate rises have kept consumer sentiment firmly in pessimistic territory ever since and are expected to keep it there for a while longer.

Retail sales

• 1 month - 1.4%

• 12 months - 7.7%

Source: Australian Bureau of Statistics

The most recent ABS retail sales data for November 2022 reported sales growth of 1.4% (seasonally adjusted) to a recorded high seasonally adjusted sales figure (noting that this continues to incorporate a level of inflation). This follows a revision to the October 2022 retail turnover to an increase of 0.4% (previously, results showed the first decline for 2022 of 0.2%). November 2022 sales were $2.55 billion higher than November 2021 sales (+7.7% vs November 2021, +13.5% vs November 2020). The increase in spending in November was at least partly driven by the Black Friday and Cyber Monday sales events, showing ongoing increasing popularity of sales events. Retail sales increased by at least 1% in all states and territories in November 2022 and all categories experienced some improvement, with the largest monthly gains recorded in the “clothing, footwear, and personal accessory retailing” (+6.4%) and “department stores” (+5.4%) categories. While spending growth was boosted in categories where online sales events are common, food-related spending lost momentum, with “food retailing” recording a small increase (+0.1%) and “cafés, restaurants, and takeaway food services” recording its weakest monthly result all year (+0.1%).

ABS online retail sales recorded a substantial 13% increase to $4 million (seasonally adjusted) in November 2022, following a 0.5% decline in October 2022. Most of this increase was driven by non-food sales ($2.9 million, +15.7% v October 2022), which contributes to around 70% of all online sales. The tendency to shop online during the promotional sales events means that online retail sales in November were estimated to represent approximately 12.6% of total retail sales during the month (compared to 10.7% in October).

Initial data from the Australian Retailers Associations’ partnership with Westpac DataX shows record breaking pre-Christmas (1 November to 24 December) spend (c.$74.5 billion, +8.6% v 2021) and Boxing Day spend (c.$1.23 billion, +15.3% v 2021), as consumers revelled in “freedom spend” and the sales events continued to increase in popularity. Strong sales in this period were a positive end to a year of resilience for retailers and provided an opportunity for many operators to unwind elevated inventory levels.