Retail spending was stronger than expected in the September quarter. However, the longer-term trend remains soft.
- September quarter real retail sales (volumes): Flat (Prev: -0.9%)
- Westpac f/c: -2.0%, Market -0.7%
- September quarter nominal sales level: 1.5% (Prev: -0.2%)
- Annual changes (September 2023 vs September 2022)
- Nominal sales: +1.1%
- Volume of goods sold: -3.4%
Retail spending was stronger than we and other analysts expected in the September quarter. However, digging into the details, we’re still seeing signs of softness, and we expect a further slowdown over the coming months.
Looking into the details of the September spending report, nominal spending levels were up 1.5% over the quarter. However, that rise was entirely due to price increases. The volume of goods sold was unchanged. That’s despite strong population growth. In other words, individual households are actually taking home fewer goods even as they splash out more cash.
Looking at the breakdown of spending in the September quarter, we did see increases in spending in the hospitality sector, potentially reflecting the boost to demand from events such as the FIFA Women’s World cup.
Spending in interest sensitive areas was mixed. Sales of items like hardware and recreational equipment did post solid gains. However, that was balanced against reduced spending on motor vehicles and items like electronics and clothing.
What does this tell as about the strength of spending?
The longer-term trend gives us a clearer picture of what’s happening to spending appetites.
Over the past year, nominal spending levels have only risen by 1.1%. Over that same period, prices rose by 4.6%, and the population increased by more than 2%.
Putting that all together leaves us with a soft picture of underlying spending appetites. The volume of goods sold fell by more than 3% over the past year. And on a per capita basis, the fall in spending levels has been closer to 5%.
Looking ahead, we expect spending to continue cooling through the December shopping season and into the New Year. Many borrowers are continuing to roll onto higher mortgage rates, consumer price inflation remains strong, and economic growth and the labour market are softening. That combination points to significant pressure on household balance sheets. However, strong population growth will help to limit the downside for spending in the face of those headwinds.
Implications for GDP growth
Today’s result was stronger than expected. We’re currently forecasting a small 0.1% contraction in September quarter GDP. We’ll review that number over the coming weeks as more data comes to hand.
