Retail spending was much weaker than expected in the December quarter, highlighting weak household spending appetites in the face of high inflation and high borrowing costs.
December quarter real retail sales (volumes): -1.9% (Prev: -0.8%)
Westpac f/c: -0.6%, Market: -0.2%
December quarter nominal sales level: -1.5% (Prev: 0.8%)
Annual changes (September 2023 vs September 2022)
- Nominal sales: -0.4%
- Volume of goods sold: -4.1%
Retail spending has been much weaker than expected.
Overall spending levels were down 1.9% in the December quarter. And updated estimates of spending in the September quarter now show a 0.8% drop (earlier estimates suggested that spending had been flat over the September quarter).
Today’s result was below market forecasts for a 0.2% decline, and even weaker than our bottom of market forecast for a 0.6% fall.
Weakness in spending has been widespread. Notably, there have been continued declines in spending in interest rate sensitive areas, such as spending on household durables like furnishings and appliances. We’ve also seen continued falls in spending in the hospitality sector.
What does this tell us about the strength of spending?
Today’s report highlights the significant impact that price increases and higher borrowing costs are having on spending appetites. Nominal spending levels were down 0.4% over the past year. But with strong price growth, the amount of goods that households are actually taking home has dropped 4% over the past year. And it’s been falling for two years now as strong financial pressures have squeezed households’ spending power.
Notably, those declines have come at the same time as population growth has been surging. In per capita terms, the volume of goods that households are taking home has fallen 6.7% over the past year.
With interest rates at high levels and inflation still strong, we expect continued weakness in spending over 2024.
Implications for GDP growth
Today’s result was weaker than expected. We’re currently forecasting a modest 0.1% rise in December quarter GDP. We’ll review that number over the coming weeks as more data comes to hand.
