Where’s the Australian consumer these days? We bathed in pandemic-era excess before being battered by rising interest rates and surging consumer prices. But with Christmas around the corner, how many of us are holding on, and how many are slipping under?
The question matters because consumption is the biggest part of the Australian economy. If consumption starts tumbling we may fall into recession, putting a lot of people out of work.
Of course, the picture will be nuanced. Some people are struggling, others not. Where we can we will dive into the nuanced picture, but for now let’s look at the top level, which tells an unhappy tale.
Shrinking pie
The most recent national accounts had household consumption growing at just 0.1%, seasonally and inflation-adjusted. It’s a dire result, given that the population grew far more than that in that period. It means less spending per capita, i.e. a lower standard of living for Australians.
As the next graph shows, we’re used to much faster growth than that.
But the most recent data in the national accounts is for the three-month period April-May-June. Much has transpired since. We can find less authoritative but more up-to-date data on what’s happening now.
Right here, right now
Commonwealth Bank puts together something it calls the Household Spending Insights (HIS) index, based on de-identified data from its own customers, representing about 30% of Australians. It shows a country that quit spending throughout the middle of the year but is now showing some signs of being willing to lash out again.
The HSI index is barely up over 12 months to August, just 2.3% higher than last year. But much of that growth came in the most recent month. It was up 0.7% in August. People may be responding positively to the news that interest rate hikes are likely over. Also, we spent a lot on recreation in August, which Commbank attributes to the Matildas’ performance in the FIFA Women’s World Cup.
Chin-chin!
The most positive signal in the whole spending data is probably how much we’ve been spending on dining out. It remains at a record level. Australians overall have proven extremely unwilling to give up cafes and restaurants, despite the cost-of-living crunch. Which is probably a sign the crunch is not hitting everyone equally. Spending on cafes and restaurants is up about 3.5% over the year according to the HSI, which is a bigger increase than seen in supermarket spending, up 2.8% a year. We just can’t quit that flat white, those burgers, that chicken and chips.
I’m not saying working families with mortgages are going out for a brunch of smashed avo or dinner at the local Thai restaurant, but someone is! And when they get there they pay through the nose. A $39 main course used to signal that a place considered itself fancy; now that sort of price is halfway down the menu at the local pub.
A big part of the consumer surge comes from the new people in Australia. Per capita spending may be weakening but overall consumer spending is strong. And the easiest category in which to spy the effect of migration is education. Education spending collapsed in 2020 but is surging back as foreign students return, including Chinese students.
The HIS index has been below its 2019 record ever since the first news reports came through of a new virus in Wuhan. The students who left that summer never returned… until now.
Another major moving part is insurance. We are spending an absolute fortune on it. I don’t think that’s because we’ve become more risk averse and we are insuring ourselves more. Instead what’s happening is prices are soaring.
On a state-by-state basis, there’s a big east-west dichotomy. According to the HIS index, WA is spending 4.7% more than last year, while Victoria is spending 0.0% more than last year, despite being a magnet for those international students who are returning.
Christmas is coming, and retailers are running down inventories in anticipation of a tough time ahead. International students aren’t going to be big Christmas spenders, and neither are parents struggling with mortgages. If anyone is going to save Christmas it is going to have to be people with cash in the bank, enjoying higher interest rates than ever.
Is this true? Is standard of living solely dependent on, and directly proportional to, spending per capita? It may well be true for some, or even for many, but is it impossible that some Australians could maintain their standard of living without great difficulty while reducing the amount they spend (waste) on things they don’t really need and that don’t actually bring them much use or joy?
Yes. Like these regular media messaged headlines ‘cost of living crises’ (rental etc. too) focused on middle class voters, but ignores how a significant cohort of lower incomes are in a permanent cost of living crisis, not an existential one; talking up a crisis can then lead to tax/budget cuts, excuse no improvement in award conditions etc., ‘libertarian trap’.
Arguable points but as ever the trend is the analyst’s friend. Using my own personal example, my rent jumped 12% a few week’s ago and that means that I don’t go to the pub twice a week (unless I’m playing a gig) as I used to and I’ve also parked my monthly gym membership. We can debate the objective merits of these changes as ‘standard of living’ factors but they feel like dips in mine to me, and prolly more relevantly, it means I’m not pitching my $100-odd weekly into the ‘SoL metrics’ of beer pullers and gym cleaners etc either, with its subsequent cascading SoL down-pressures beyond theirs.
As a casual contract carer I grossed about 55K last FY but I could easily have worked more and done better, b0ecause there’s loads of care work around (or was) ie = the money to fund it). But whether I’m fiscally ‘middle class’ or ‘lower income’ or even ‘underclass’ is perhaps less relevant than it might seem at first glance. The gym and pub owners/managers and their reliant networks of suppliers/accountants/tradies etc almost certainly will be, as are many of my care clients, and they all receive and transmit their ‘consumer spending’ signals both up and down the economic chain.
Ha, I copied that exact same text and came here to write pretty much the exact same thing!
A bike ride with my daughter or reading a good book from the library are how I measure my quality of life. The bike cost me something 20 years ago but neither activities cost me a cent.
CommBank sponsored the Matildas!
Depends on whether they’re caught in the rip?
Journal articles about Christmas in the first half of September
Good to see your byline again, JS, it’s a very useful & thoughtful piece.