Consumers remain deeply pessimistic despite small improvement in December

Consumer sentiment increased by 2.7% in December 2023 to 82.1, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. ABS Retail Sales recorded a 0.2% decrease in October 2023, as consumers likely pulled back on spend in anticipation of the November sales events. NAB Online Sales continued the improvement seen in recent months increasing by 3.3% in October 2023. According to recent commentary by Westpac’s senior economist Andrew Hanlan, high inflation, rapidly increasing interest rates and a higher tax burden have driven real incomes in Australia to their lowest level in eight years. Reports suggest many households have had to use their savings buffer (built up during the pandemic) over the course of 2023 and are now feeling the pressure of an elevated cost-of-living on their budgets. This had led to an increasing trend toward value-shopping and/or trading down. The small fall in retail sales in October was followed by an anticipated 3% increase in spending during the November cyber sales period indicating consumers delayed spending in October to capitalise on the November Black Friday and Cyber Monday sales events, continuing the growing popularity of these sales events seen in recent years. The question is how much of the November sales spend is a pull forward of Christmas shopping spend.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Consumer sentiment increased by 2.7% to 82.1 in December 2023, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. While this improvement reversed last month’s decrease and ends the year on a slightly improved note, sentiment has remained in deeply pessimistic territory for the entire calendar year. In fact, 2023 marks the second worst calendar year for sentiment in the history of the survey (dating back to 1974). The December 2023 survey was undertaken in the week the RBA held the cash rate at 4.35%, providing some relief to consumers after a year where incomes came under pressure from sustained elevated cost-of-living, higher interest rates and a rising tax take. The survey detail showed a clear impact from the RBA’s latest decision, with those surveyed after the RBA’s announcement showing an average index read that was 5.4% higher than those surveyed before the announcement (83.4 v 79.1). There were mixed results across the component sub-indexes in December, with near-term views of the economy remaining gloomy, while expectations for the economy over the medium to long term strongly improving. Views on family finances showed some improvement, however remained in extremely weak territory (‘finances vs a year ago’ increased by 5.9% to 68.2, ‘finances next 12 months’ increased by 3.9% to 90.4). The ‘time to buy a major household item’ sub-index fell 3.8% to 78.2, with 2023 recording five of the eight weakest reads in this component sub-index in the history of the survey.

Source: Australian Bureau of Statistics

The most recent ABS retail sales fell by 0.2% (seasonally adjusted) in October 2023, following a small increase in spending in September. Although the October 2023 results were 1.2% higher than the retail sales recorded in October 2022, analysis suggests the result is largely inflation driven and underlying retail sales volumes are flat or negative. Turnover was down in all retail categories, except ‘food retailing’ (+0.5%). ‘Cafes, restaurants, and takeaway food services’ (-0.4%) continued to show slowing growth in response to elevated food prices and the ongoing impact of cost-of-living pressures. The discretionary retail categories recorded the largest declines in October 2023, with ‘clothing, footwear, and personal accessories’ declining by 1.0% and ‘household goods’ and ‘department stores’ both declining by 0.6%. The decline in discretionary spend in October 2023 was also likely impacted by consumers delaying purchases in anticipation of the Black Friday and Cyber Monday sales events in November. With November sales events continuing to grow in popularity over recent years, compounded by the impact of cost-of-living pressures driving consumers to plan their spend around sales events, a strong November 2023 ABS retail sales result is expected with some impact on December also likely.

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales increased by 3.3% in October 2023 (seasonally adjusted), following a revised growth of 0.7% in September 2023 (previously 2.9%). Sales growth continues to be elevated in year-on-year terms (+9.6% vs October 2022). In contrast to the ABS retail sales, growth was led by ‘personal and recreational goods’ (+6.3%), as well as a return to growth for ‘fashion’ (+4.8%), and ‘grocery and liquor’ (+4.8%). All other categories experienced broad-based growth, except for a contraction in ‘media’ (-4.0%), which partially reversed the rapid growth (+9.1%) in September 2023. Both domestic and international retailers experienced record growth in the month (3.3% and 2.8% respectively). Online retail sales are estimated to total $54.36 billion and represent 12.8% of retail sales reported by the ABS during the 12 months to October 2023.