Renters have more to spend: CommSec’s Craig James
GUEST OBSERVER
The Australian Bureau of Statistics (ABS) released retail spending data for December on Monday.
CommSec obtained detailed spending data from the ABS in nominal and real (inflation-adjusted) terms. The data provides insights on how spending has been changing across the economy.
In 2016, Aussies spent just over $300 billion on retail goods and activities like food and clothing and spending at cafes and restaurants. Spending lifted 3.5 percent in 2016 with prices up 1.3 percent.
In terms of actual goods bought, Aussies spent more on clothing, take-away food and online purchases but less at specialised food shops like butchers and less on newspapers and books.
The average Aussie spent on average just over $240 a week on retail goods in 2016, up just under $5 a week over the year. Over the same period the average wage was estimated to have lifted $31.50 a week.
What does it all mean?
How much are you spending on take-away? The latest figures suggest the average Aussie consumer is spending around $14 a week on take-away and bought nearly 6 per cent more than a year ago – the biggest increase in six years. In part, it is due to price. The cost of take-away food rose by just 2 per cent in 2016 – that is actually a smaller lift in prices than was recorded at supermarkets over the past year.
Interestingly, eight years ago the average Aussie spent more each week on clothing than take-away food. Now take-away food takes up a bigger share of spending. Price is one consideration – clothing has become far more affordable over time – in fact clothing prices fell again in 2016.
It is clear that Aussie consumers are spending, but selectively, no doubt using technology to shop around and get the best price – either at home or overseas. Total spending on retail goods and services rose by 3.5 per cent in 2016, the slowest calendar- year spending in three years. The goods and services that were bought cost 1.3 per cent more than a year ago and Aussie consumers bought 2.2 per cent more of a raft of items.
On average each week in 2016 Aussie consumers spent $240.32 on retail goods and activities like food, clothing and spending at cafes and restaurants. Compared with a year earlier, that means the average consumer outlaid an extra $4.81 a week. Notably however we estimate that the average weekly wage (average weekly ordinary time earnings) lifted by $31.50 over the same period. So clearly Aussie consumers had enough extra dollars to cover spending on the essentials before turning their attention to other bills such as rent, mortgages and medical costs.
In terms of actual goods purchased (volumes), Aussie consumers elected to buy more clothes, with real (inflation- adjusted) spending up 7.5 per cent. Over the year the price of clothing fell by 0.6 per cent.
Aussies also spent more on take-away food, chemist-type goods like cosmetics as well items from smaller retailers such as online stores, second-hand retailers and flowers retailers.
The ABS data also indicates that Aussies spent less at “specialised” retailers such as butchers and bakers while also spending less at newspaper & book retailers.
The affordability debate
One of the interesting issues at present is the debate on housing affordability. Budding home buyers in Sydney and Melbourne fear that home ownership will remain outside their grasp given rising home prices. Of course budding home buyers in regional Australia and in the west and north of Australia would have fewer concerns about housing affordability given record-low interest rates and slower growth in home prices.
Affordability clearly differs with the type of good being purchased. At present housing affordability is perceived a problem but affordability of a raft of items like food, clothing, cars and overseas travel is at or near the best levels recorded. Clearly affordability will vary markedly depending on the wage or income received and how that is changing over time.
But importantly in the current debate, many consumers are paying out relatively less of their income on essentials like food, clothing and transport, allowing extra dollars to be allocated to housing. And as the Reserve Bank noted yesterday, rents are growing at the slowest pace in decades. So those renting have the ability to save more and potentially put it towards a deposit to buy a home.
Over the past five years, weekly spending on retail goods per person rose by $27.58 while the average weekly wage rose by $202.00. And over the past decade, weekly retail spending per person rose by $54.44, while the average wage rose by $455.20.
Total consumer spending
The final figures for total consumer spending for the entire 2016 year won’t be published until early March. But the latest data shows that the average consumer spent $765.31 a week on all goods and services including cars, electrical bills and medical costs for the twelve months to September. Total consumer spending rose by $25.31 a week over the period, still short of an estimated $31.50 lift in the average wage over the same period.
What are the implications for investors?
Consumer spending drives the Australian economy, accounting for 57 per cent of gross domestic product (GDP) in the September quarter. So the fact that retail spending lifted 0.9 per cent in the December quarter is important, suggesting that household consumption may have contributed as much as 0.5 per cent to economic growth in the quarter. Certainly the Reserve Bank noted yesterday that “A return to reasonable growth is expected in the December quarter.”
Consumers are spending, but relatively cautiously. As a result, retailers must constantly revise strategy, especially as competition has increased from home and abroad. A number of clothing retailers have been placed into administration recently, especially at the upper end of the market. Competitors have lifted the quality of their products but not prices, and are exploiting opportunities where established retailers haven’t built brand loyalty.
While home prices have posted firm gains in some cities, the strength of the gains has been far from uniform. So housing affordability differs markedly across the country. But with affordability of many other essential items improving, consumers have extra dollars and choice in terms of their housing options.
Consumers are constantly updating their priorities. At the same time relative prices are changing, also causing changes to the type and amount of goods purchased. The Aussie consumer is in good shape at present because real incomes and wealth are rising, but retail margins will remain under pressure because competition is now global, rather than largely local.
Craig James is the chief economist at CommSec.