Pessimistic interest rate outlook continues to offset fiscal relief

05 July 2024

Consumer sentiment increased 1.7% in June 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment, however sentiment remains in deeply pessimistic territory at 83.6. The April ABS retail sales increased by 0.1% (seasonally adjusted), with growth in New South Wales (+0.7%) and South Australia (0.5%), partially offset by contractions in Victoria (-0.4%), Australian Capital Territory (-0.3%), and Queensland (-0.2%). Meanwhile, NAB Online Sales showed a slight 1.3% increase, which equated to 16.4% above online spending in April 2023. Retailers hope that end-of-financial-year (EOFY) sales will provide a revenue and cashflow boost despite the environment of pessimism and supressed discretionary demand. Some analysts forecast spend of $10.1 billion on retail (+8.6% vs 2023), however we note that YTD April sales (according to the ABS) are only 1.3% above the same period in FY23 which may mean those predictions are difficult to achieve. We are likely to see some seasonal spending in the mid-year sales period, however the priority for many consumers continues to be rebuilding household balance sheets. Discretionary categories such as ‘takeaway food’ continue to be subdued, while non-discretionary categories such as ‘groceries and liquor’ experience moderate growth. Revised spending estimates imply that household savings buffers have been substantially affected over the past two years. The increase in household income brought by the stage 3 tax cuts set to take effect on 1 July will provide a much-welcomed opportunity for consumers to rebuild these buffers and stabilise household finances heading into the second half of 2024.

Consumer confidence

  • vs prior month - 1.7%

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Consumer sentiment rose by 1.7% to 83.6 in June 2024 according to the Westpac-Melbourne Institute Index of Consumer Sentiment; a marginal improvement but remaining in deeply pessimistic territory. Two topics were prevalent in the minds of consumers in June, ‘budget & tax’ and ‘inflation’. Consumers are continuing to react positively to state and federal governments policies aimed at relieving cost-of-living pressures, however the impact of these policies has been largely negated by increased concerns about inflationary pressures and the possibility of further rate rises. The strength of consumer sentiment survey responses in different periods highlights the apparent strong linkage between sentiment and interest rate expectations. In the lead up to the June RBA decision consumer sentiment averaged 90.0, while post-decision consumer sentiment averaged 80.6. While many of the sub-indices reported strong improvements in June, most are still in deeply pessimistic territory. For retailers, the seasonal spending period provides a critical opportunity to manage for cash for the next few months and restock for when consumers may be ready to spend again in the latter half of the year.

Retail sales

  • vs prior month - 0.1%

  • vs pcp - 1.3%

  • 12 months v pcp - (6.1%)

Source: Australian Bureau of Statistics

The ABS Retail Sales data for April 2024 showed a seasonally adjusted increase of 0.1%. The slight increase was driven by increases in ‘other retailing’ (+1.6%), ‘household goods’ (+0.7%) and ‘department stores’ (+0.1%) while ‘clothing, footwear and personal accessory retailing’ (-0.7%) and ’food retailing’ (-0.5%) showed contractions. Retail spending continues to be weak, with the small increase in April 2024 not enough to make up for the fall in March 2024 (-0.4%). Most states and territories recorded no change in retail sales over March with New South Wales (+0.7%) and South Australia (+0.5%) recording growth. April 2024 sales were 1.3% or $0.4 billion higher than April 2023 sales which, after considering the annual CPI to April of 3.6%, represents an underlying decline. Retail sales are expected to be elevated in May 2024 and June 2024 attributable to the Click Frenzy and EOFY sales.

Online retail sales

  • vs prior month - 1.3%

  • vs pcp - 16.4%

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales increased in April 2024 by 1.3% (seasonally adjusted), following a March 2024 result of 0.3%. The seasonally adjusted April 2024 sales dollars were 16.4% above April 2023 sales. There were mixed results by category with ‘department stores’ (+3.5%) and ‘media’ (+2.5%) recording the highest growth while ‘takeaway food’ (-1.3%) and ‘personal and recreation’ (-0.7%) experienced declines. A trend worth noting is the contraction in ‘takeaway food’ spending suggests that consumers are increasingly adopting budget saving measures as online ‘grocery and liquor’ rose by 1.2%. Online retail sales are estimated to total $57.14 billion and represent 13.4% of retail sales reported by the ABS during the 12 months to April 2024.