Pessimism shifts from cost-of-living to economic outlook

Consumer sentiment decreased by 0.5% to 84.6 in September 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. The most recent ABS retail sales remained unchanged in July 2024 following growth of 0.5% in both May and June 2024. Despite no growth from June, July retail sales remain at an elevated level after increased spending during the mid-year sales events and were 2.4% above July 2023. This compares to NAB Online Sales which decreased by 2.6% in July 2024, attributed to a slowdown in online spend following the June EOFY sales events. Value-conscious consumers are continuing to prioritise promotional periods to spend so November’s Black Friday sales will be key to the success of 2024. For wealthier consumers, retailers are competing with international travel as they catch up on holidays missed during the pandemic. Retailers will be seeking to tap into in-bound traveller spending to offset some of the pressures domestically. Profitability pressures are continuing to hit retailers hard, as seen in recent reporting by companies including JB Hi-Fi and Harvey Norman. Revenue headwinds coupled with rising wages, utility costs, and insurance premiums are squeezing retail profits. Tax cuts and energy rebates may provide some relief in the near term.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Consumer sentiment decreased by 0.5% to 84.6 in September 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. Despite a small bump last month, the index remains deeply in pessimistic territory; a trend which has dominated the consumer mood for over 2 years. The sub-indexes showed mixed results in September. Family finance related indexes continued to trend upwards, with ‘family finances vs a year ago’ building 1.2% on its two-year high last month to 71.8 (still very pessimistic), while ‘family finances, next 12 months’ also increased by 0.2% to 97.0. ‘Time to buy a major household item’ was flat in month-on-month terms, while ‘economic conditions next 12 months’ and ‘economic conditions next 5 years’ declined by 2.6% and 1.0%, respectively. Notably, the driver of pessimism appears to be shifting away from cost-of-living pressures and interest rates and towards the mid-term economic outlook and job security. Westpac-Melbourne Institute analysis on the impact of news topics on consumer mood showed that while ‘inflation’ remains highly negative, negativity has begun to ease over the past few months. In contrast, pessimism around 'the economy', 'budget & taxation', and 'employment' has increased, with 70–80% of survey respondents viewing these topics negatively in September; a 10–20% rise since June 2024. The concern with this change is that it impacts a broader section of consumers, not just mortgage holders and renters. Those consumers not negatively impacted by interest rates have supported retail spend in the past year. Clarity around inflation progress (and therefore interest rates) is anticipated when the September quarterly inflation figures are released on or around October 30. Those developments will shape consumer sentiment and seasonal spending in the next few months.

Source: Australian Bureau of Statistics

The ABS Retail Sales data showed that seasonally adjusted sales held steady at $36.2 billion in July 2024, with sales up by 2.4% or $0.86 billion compared to July 2023. This stability follows three months of growth, including a 0.5% uptick in both May and June 2024, largely fuelled by heightened spending during mid-year sales. The retail sector by industry had mixed results, with ‘food retailing’ (+0.2%) the only category to experience an increase whereas ‘household goods retailing’ and ‘other retailing’ showed no change. In contrast, ‘clothing, footwear, and personal accessory retailing’ as well as ‘department stores’ (both more discretionary) experienced declines of 0.5% and 0.4%, respectively. The ABS Household Spending Indicator (HSI) data for July 2024 records a more favourable result, up 0.8% on a current price, seasonally adjusted basis. In July, households spent more on services (+0.9%) than goods (+0.1%) and non-discretionary (+1.4%) than discretionary (+0.9%). Consumers are increasingly value-conscious, prioritising promotional periods to spend. In the lead up to Black Friday in November, the largest sale period in the year, retailers’ approach to their discounting plan and its intensity will be vital to stand out in a sea of sales. November sales will be key to 2024 because trade may be tough in the months leading up to November.

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales decreased by 2.6% in July 2024 (seasonally adjusted), following slightly revised growth of 2.5% in June 2024 (previously 2.8%). All categories, except for takeaway food (+4.4%) and department stores (+2.6%), saw declines. Home and appliances (-7.6%) and fashion (-6.1%) led the drop, as consumers eased off big-ticket spending post the EOFY sales period. The cross-category decline aligns with typical post-seasonal-sale patterns; however, this year saw stronger pre-June growth and a more pronounced impact on non-discretionary categories, including grocery and liquor, which are typically less affected. The pre-June growth is likely due to retailers starting their mid-year sales early. On a regional basis, all states except Western Australia (+1.6%) and Queensland (+0.1%) experienced declines. Tasmania saw the largest decline of 6.0%, followed by New South Wales and South Australia at 5.3% and 5.2%, respectively. In the 12 months to June 2024, online retail sales are estimated to total $58.01 billion and represent 13.5% of retail sales reported by the ABS.