Consumer spending is not as weak as the latest set of figures make it appear, but it’s weak enough to support the argument for lower interest rates.
The value of retail turnover rose by 0.5 per cent in September, seasonally adjusted figures from the Australian Bureau of Statistics (ABS) on Monday showed.
By itself, that would be a strong enough rise, but it came after a softer 0.3 per cent gain in August and both of those increases combined were only just enough to make up for the 0.8 per cent drop in July.
As a result, turnover in the September quarter was up only by a modest 0.6 per cent from the June quarter.
And it was all price rises, mostly for the volatile category of food retailing where prices were up by 1.6 per cent.
Allowing for price rises averaging 0.7 per cent overall, the volume of retail turnover actually fell marginally, to be down by 0.1 per cent in the September quarter compared with the three months ending June.
It would appear that consumer spending has ground to a halt, but this appearance is very likely to be deceptive.
For starters, a strong rise in June followed by a dip in July exaggerated the real-terms rise of 1.2 per cent in the June quarter and the subsequent marginal fall in the September quarter.
For seconds, retail turnover measured by the ABS covers only a part of household spending – less than a quarter, in fact.
It’s not unusual for a weak result in retail spending to be accompanied by a solid gain in the rest of consumer spending, which includes motor vehicle and fuel purchases, household utilities, rent, education and health among other things.
And for thirds, the driving force behind household spending – disposable income – is still rising.
Over the first half of the year, it rose at an annualised rate of 5.9 per cent, only a smidgin under the 6.6 per cent average pace of the preceding decade.
So there is no need to fear consumer spending has hit the wall.
But it has slowed nevertheless, and looks set to stay slow.
The weak pace of employment growth – in fact it’s now completely flat, according to the ABS trend figures – makes it more likely that the trend in consumer spending will be weaker than normal as well.
The recession in the housing industry is a another dark cloud on the horizon for consumer spending – housing is an important, if unrecognised, driver of consumer demand.
And the new official national sport of paying off debt means an interest rate cut will only give borrowers extra cash to put on the credit card or the home loan rather than to spend at the mall.
The futures market gives an interest rate cut from the Reserve Bank of Australia (RBA) on Tuesday only marginally more than a 50 per cent chance.
But if the RBA decides to stay on the sidelines, it should not be because of concerns that consumer spending might accelerate too much.
