Is the Aussie consumer waving or drowning?

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.