Australian household spending rises 0.6% in September

Australian household spending rose 0.6% in September, a stronger result than market expectations, CreditorWatch said.

The increase was above forecasts for a 0.2% rise, according to analysis by CreditorWatch Chief Economist Ivan Colhoun.

Colhoun said the figures were partly lifted by higher petrol prices, which drove a 5.4% month-on-month rise in fuel spending and pushed transport spending higher. He said that should not be read as a sign of consumer strength because it reflected cost pressures rather than stronger demand.

Spending on recreation and culture was also supported by the AFL finals, particularly with many matches involving interstate teams. Health spending was firmer as well, which Colhoun linked to a late flu season.

Other parts of the retail landscape were softer during the month. Food, tobacco and alcohol, clothing and footwear, and furnishings, electrical and homewares recorded relatively subdued outcomes in September.

Colhoun said changing shopping patterns were affecting monthly readings in several categories. He pointed to the growing influence of end-of-financial-year promotions and Black Friday discounting, which were changing the timing of consumer purchases.

Volume trends

Beyond the headline figures, Colhoun pointed to spending volumes as a better guide to underlying demand because they help separate real growth from inflation. On that measure, he said most major categories still showed gains.

"This data arguably lacks some relevance given it precedes the two recent interest rate rises by the RBA. However, at face value, the volume data is consistent with above trend growth for all categories of retail," said Ivan Colhoun, Chief Economist, CreditorWatch.

He said all major spending categories, apart from alcohol and tobacco, were recording volume growth of about 2% to 4%. Alcohol and tobacco were excluded from that assessment because of the effect of illicit tobacco sales on the data.

In his view, that pace was faster than the Reserve Bank of Australia's estimate of potential growth. He also questioned the central bank's interpretation of capacity constraints, saying the spending figures appeared stronger than that framework would suggest.

State picture

Regional data showed a varied pattern across the country. Colhoun said the AFL finals helped shape volume outcomes in Western Australia, Queensland and Victoria.

He said the Northern Territory and Western Australia had emerged as the strongest regions for consumer spending volumes, likely reflecting those economies' exposure to higher energy and commodity prices.

The stronger September result, however, comes with a qualification. Colhoun stressed that the figures largely predate the Reserve Bank's most recent interest rate increases and may not capture the effect of tighter financial conditions now facing households.

"The key will be how consumer spending fares in coming months after the latest two interest rate rises. It's expected that higher fuel prices, lower housing turnover and squeezed disposable income will see growth in discretionary spending categories slow," said Colhoun.

His assessment suggests the September data may offer only a partial guide to the outlook for retail and broader consumer activity. Borrowing costs have risen further, fuel prices remain elevated, and weaker housing turnover is expected to weigh on spending linked to household moves and renovation activity.

Colhoun said the Reserve Bank now appeared likely to wait and assess the effect of recent tightening on the economy. He noted that the central bank had already lifted rates several times earlier in the year before adding further increases in September and November.

That sequence, he argued, should curb growth in discretionary categories as household budgets come under more strain. "That extra tightening - along with higher oil prices and reduced housing turnover - should see slower growth in discretionary items of spending," said Colhoun.