Relief from rate rise fears boosts consumer sentiment
14 October 2024
Consumer sentiment increased by 6.2% to 89.8 in October 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. This reflects reduced concerns about interest rate increases, deduced from international interest rate cuts and signs of moderating inflation in Australia (2.7% in August 2024). At 89.8, sentiment is at its highest point since May 2022, with some forward-looking indexes pushing into the very high 90s. The most recent ABS retail sales increased by 0.7% in August 2024, driven by warmer-than-usual weather and Father’s Day sales events. In contrast, NAB Online Sales was flat in month-on-month terms in August 2024, attributable to an offsetting, mixed bag of subsector results and notably, relative softness in metro areas in New South Wales and Victoria. This indicates a flexibility of consumers between bricks and mortar and online sales and a propensity to spend on seasonal festivities or sales. The improved forward-looking sentiment means that as November approaches (typically the largest sales month of the year), retailers should prioritise demonstrating value and offering bespoke promotions to consumers.
Consumer confidence
vs prior month - 6.2%
vs pcp - 9.5%
Source: Westpac – Melbourne Institute Consumer Sentiment Index
Consumer sentiment increased by 6.2% to 89.8 in October 2024, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. This is the highest level in two and a half years, although it still remains in pessimistic territory. All sub-indexes saw improvements, with the largest movements occurring in the ‘economic outlook, next 12 months’ (+14.3% to 92.8) and ‘economic outlook, next 5 years’ (+8.0% to 97.8) sub-indexes. These gains are attributable to easing interest rate rise fears, buoyed by international interest rate cuts and the monthly CPI read of 2.7% in August 2024. These sub-indexes are now above their long-run averages for the first time since May 2022. The ‘family finances vs a year ago’ and ‘family finances next 12 months’ sub-indexes both grew by 2.8%, showing that while cost-of-living pressures remain (‘family finances vs a year ago’ index is at a lowly 73.8 but up 16.8% from May), they are expected to stabilise over the coming year (‘family finances next 12 months’ index now at 99.7). The Westpac–Melbourne Institute Mortgage Rate Expectations Index fell 14.1% in October, a one-third decline since July, reaching 106.4—the lowest since the RBA's COVID policy easing. Over half of consumers now expect mortgage rates to remain stable or decrease over the coming year, compared to about a quarter in July 2024. This shift may give mortgage-holders the confidence to spend, particularly during the upcoming Black Friday sales where consumers will likely pull forward their Christmas spend as has been the case for a number of years. Retailers are however in a “war-for-wallet” as consumers will also be more confident to increase travel spend in 2025 so may temper retail spending in the interim. The upcoming RBA Board meeting in November will further influence sentiment.
Retail sales
vs prior month - 0.7%
vs pcp - 3.1%
12 months v pcp - 2.1%
Source: Australian Bureau of Statistics
The ABS Retail Sales data in August 2024 showed that seasonally adjusted sales increased by 0.7% to $36.5 billion in Auguust 2024, marking a 3.1% increase or $1.1 billion compared to August 2023. This growth follows a revised 0.1% increase in July (previously 0.0%) and 0.5% in June 2024, driven by warmer-than-usual weather and mid-year sales. This August was the warmest on record since 1910, which saw more spending on items typically purchased in spring. This included summer clothing, liquor, outdoor dining, hardware, gardening items, camping goods and outdoor equipment as revealed with most categories recording a gain in August. The largest increases were seen in ‘department stores’ (+1.6%), ‘clothing, footwear and personal accessory retailing’ (+1.5%), and other retailing (+1.3%). This discretionary spend was also higher due to consumers taking advantage of the sales leading up to Father’s Day. In contrast, ‘household goods retailing’ (-0.3%) experienced a decline. This increase in consumer spending highlights the impact of seasonal factors and key events, such as Father's Day, on retail behavior. The next seasonal festivity is Halloween, with retailers expecting a $450 million spending boost in the lead up to 31 October.
Online retail sales
vs prior month - 0.0%
vs pcp - 9.8%
Source: NAB Online Retail Sales Index
The NAB Online Retail Sales remained relatively flat in month-on-month terms in August 2024 (+0.0%, seasonally adjusted), following a slightly revised contraction of 2.5% in July 2024 (previously 2.6%). The performance of the sub-categories was mixed over the month with growth in fashion (+2.8%), games and toys (+2.3%), media (+1.5%), grocery and liquor (+1.4%) and takeaway food (+0.3%), offset by contractions in department stores (-2.1%), homewares and appliances (-2.0%), and personal and recreational (-0.3%). Notably, the takeaway food and grocery and liquor categories have not moved in the same direction for the past 4 months and have both plateaued in terms of growth in their respective share of the category, indicating consumers typically directly substitute between these categories. On a regional basis, the two largest sales states, New South Wales (+0.3%) and Victoria (-1.5%), were relatively weak in terms of sales growth. This was driven by softness in metro areas compared to regional areas in both states, a reversal of the trend we have seen over 2024. In contrast, Tasmania and the Northern Territory led growth across the minor states and territories at 2.8% and 2.5%, respectively. In the 12 months to August 2024, online retail sales are estimated to total $58.02 billion and represent 13.5% of retail sales reported by the ABS.