Weak consumer spending reflects ongoing economic concerns

- May 31, 2024 2 MIN READ

Consumer spending in Australia remains tepid, with retail spending showing minimal growth since the beginning of 2024, according to the latest Australian Bureau of Statistics (ABS) retail trade report.

Despite a slight uptick of 0.1 per cent in seasonally adjusted terms for April, retail turnover remains largely stagnant, rising only 1.3 per cent compared to the same period last year.

Anneke Thompson, Chief Economist at CreditorWatch, noted that consumer confidence is significantly low, contributing to the sluggish retail performance.

“Westpac consumer confidence data confirms that Australian consumers remain extremely despondent,” said Thompson. “Although Treasury forecasts that income tax cuts and cost of living measures announced in the budget will assist in a recovery in real disposable income over the 2025 financial year, it remains to be seen if this will flow on to increased spending in the retail sector.”

Hospitality sectors still suffering

The ABS report highlighted that specific sectors experienced varied performance in April 2024. Key findings include:

Food Retailing: Decreased by 0.5 per cent (-$77.1 million).

Household Goods Retailing: Increased by 0.7 per cent ($37.7 million).

Clothing, Footwear, and Personal Accessory Retailing: Decreased by 0.7 per cent (-$19.5 million).

Department Stores: Marginally increased by 0.1 per cent ($1.3 million).

Other Retailing: Experienced the most significant growth, rising 1.6 per cent ($87.7 million).

Cafes, Restaurants, and Takeaway Food Services: Increased by 0.3 per cent ($16.6 million).

Thompson attributed the growth in “other retailing” to the early Easter and the timing of school holidays in March and April, which temporarily boosted sales. However, she said that overall consumer sentiment remains weak.

Retail sector still weak

Looking ahead, Thompson expressed concerns about the retail sector’s immediate future.

“Even if real disposable incomes do increase with income tax cuts, a weakening labor market and rising unemployment tend to make Australian consumers uneasy about overspending,” she said.

“A recovery isn’t likely until we see two or three cuts to the cash rate, as only then will mortgage holders start to feel more confident that they have some breathing space in their monthly budget.”

Given the current economic conditions, Thompson predicts that retail sector insolvencies will rise, particularly among smaller, discretionary retailers. The sector has already seen a 35 per cent increase in insolvency rates over the year to April 2024.

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