Consumer sentiment improves slightly, yet pessimism persists

Consumer sentiment increased 2.8% to 85.0 in August 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. The most recent ABS retail sales increased by 0.5% (seasonally adjusted) in June 2024 with NAB Online Sales increasing by 2.8%. The boost in both sales figures was largely attributed to consumers taking advantage of EOFY year sales events, particularly for “big-ticket” items such as household goods and electronics. While the RBA cash rate remained unchanged again in August 2024, it is likely households will need to be patient in waiting for relief. Government initiatives appear to be having a positive impact as Westpac’s Card Tracker Index has shown a lift in discretionary spending (+2.6% vs 2023) since the tax cuts came into effect on 1 July. Retailers should prioritise remaining front of mind to be well-positioned to capture spend for when consumers have more capacity to open their wallets.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Consumer sentiment increased by 2.8% to 85.0 in July 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. This follows the RBA leaving the cash rate unchanged, and support from tax cuts and other fiscal measures starting to be felt by consumers. The sub-indexes mostly showed improvements, particularly within family finances. ‘Family finances vs a year ago’ experienced an 11.7% increase in August, lifting the index to a two-year high of 70.9 which remains relatively low. The monthly rise was particularly strong amongst low-income earners; 18–34-year-olds and those aged over 65; and in South Australia, Queensland, and Victoria. Similarly, ‘family finances, next 12 months’ increased 5.1% to 96.8 in August - the highest level since the cash rate changes started in May 2022. Despite the large increases in both the ‘family finances’ sub-indexes, the August results mostly reverse the considerable declines experienced in the two July 2024 readings (-8.4% for ‘family finances vs a year ago’ and -4.5% for ‘family finances, next 12 months’) and falls within the bottom 15% of readings since the data series began in the mid-1970s. There was also an unwind of previous Westpac-Melbourne Institute Mortgage Rate Expectations Index results in August 2024, showing that consumer fear around rate increases is beginning to subside. The index, which tracks consumer expectations for variable mortgage rates over the next 12 months, decreased by 14.9% which offset over two-thirds of the 36% surge seen over the past 3 months. This is likely to have been influenced by the ABS June 2024 quarter inflation update, with CPI reaching 3.8%.

Source: Australian Bureau of Statistics

The ABS Retail Sales data for June 2024 showed a seasonally adjusted increase of 0.5%, with sales up by 2.9% or $1.0 billion compared to June 2023. This marks the third consecutive month of ABS retail sales growth, predominantly driven by increases in non-food related industries, notably ‘household goods retailing’ (+1.1%), ‘department stores’ (+1.0%), and ‘other retailing’ (+1.0%). The boost was largely attributed to consumers taking advantage of EOFY year sales events, particularly for “big-ticket” items such as household goods and electronics. The only category not to increase was ‘cafes, restaurants, and takeaway food services’ which instead remained unchanged at 0.0%. While sales have increased, volumes continue to be subdued, falling for the sixth time in the past seven quarters. Despite the increase in the traditional ABS retail sales measure, ABS Household Spending Indicator (HSI) data for June 2024 reported a 0.5% decrease in household spending (seasonally adjusted) following consecutive increases in May (+1.0%) and April (+0.8%). In June, households spent more on goods (+4.3%) rather than services (-0.3%), consistent with the earlier comments regarding EOFY sales driving spend. Consumers remain on the hunt for value, meaning retailers need to focus on their unique value proposition and emotional value if they want to preserve margin during periods of increased promotional intensity. A period of consumer constraint is expected to persist at least until the end of the year, so retailers should focus on building awareness now to be well-positioned for when consumer spending picks up again.

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales increased by 2.8% in June 2024 (seasonally adjusted), following a slightly revised decline of 1.5% in May 2024. This positive trend continued with year-on-year growth accelerating, as seasonally adjusted sales dollars for June 2024 increased by 14.0% compared to June 2023. Although seasonal factors from EOFY sales influenced this, price inflation also played a role, especially when comparing on an annual basis. All categories, except for ‘takeaway food’ (-9.0%), experienced growth. The largest increase was seen in ‘home and appliances’ (+7.2%) where average spending outpaced the volume of transactions. In contrast, takeaway food recorded one of the largest contractions in NAB’s history of the series, suggesting it was affected by factors beyond typical market trends, even as broader discretionary categories like restaurants and cafés performed well. All states reported an uptick, with the Northern Territory (+9.8%) experiencing the largest increase, followed by Tasmania (+6.0%) and South Australia (+5.6%). Online retail sales are estimated to total $57.8 billion and represent 13.5% of retail sales reported by the ABS during the 12 months to June 2024.