There may be a lot of worrying economic news out there but the latest confidence figures suggest consumers have yet to throw in the towel.
That’s a blessing for shopkeepers in what is their busiest time of year, but a new report into the retailing sector warns “consumers are running on empty”.
As last week’s national accounts showed, household spending dipped in the September quarter and savings slumped to the lowest level since 2007, as consumers dig deep into their pockets to try to make ends meet.
In his latest quarterly Retail Forecasts report, Deloitte Access Economics partner David Rumbens says for some consumers it’s meant more spending on their credit card, for some it’s redrawing equity and for others it’s putting less away for a rainy day.
“That’s been fine while wealth has been increasing, but with Sydney and Melbourne house prices now falling, consumers are running on empty and their will be some tricky transitions for next year,” he said.
Even so, Mr Rumbens believes strong employment growth has helped to offset some of the weakness from a rapidly cooling housing market and falling unemployment is causing wages to edge higher, although he admits this is a “slow process”.
As such he expects retail turnover growth to be 2.6 per cent for this 2018-19 financial year – unchanged from last year – before accelerating to to 2.9 per cent 2019-20.
Mr Rumbens expects consumer spending will swing towards essentials such as food, clothing and smaller items and services, and away from big-ticket items such as durable goods that are normally associated with a buoyant housing market.
Monthly retail spending figures released last week showed consumers have already pulled back on dining out.
National Australia Bank’s latest monthly business survey shows retail industry conditions have continued to deteriorate, lagging those of other industries.
NAB Group chief economist Alan Oster says this is unsurprising, given the headwinds facing consumers.
But Mr Oster said while falling house prices have garnered much media attention of late, businesses do not yet suggest they are having a material impact on them as a whole.
Falling house prices in themselves may have a ‘wealth effect’ on households but given the prior large run up, the impact of the declines to date is unclear.”
Despite all this uncertainty, consumer confidence, a pointer to future retail spending, eased only 1.5 per cent in the past week.
This still left the weekly ANZ-Roy Morgan consumer confidence index well above its long run average.
Likewise, the monthly Westpac-Melbourne Institute consumer sentiment gauge rose 2.8 per cent
All of which suggests retailers shouldn’t be pulling down their shutters early and calling it a day just yet.
Colin Brinsden is AAP’s former economics correspondent based in the Canberra Press Gallery.