Australian Household Spending Declines in September

By Wayne Cole

SYDNEY (Reuters) – Australian household spending fell in September as consumers cut back on clothing and cars, data showed on Friday. This trend provides further confirmation that billions of dollars in recent tax cuts were being saved rather than spent.

This decline is likely to be a downside surprise for the Reserve Bank of Australia (RBA), which had anticipated a pickup in consumption during the second half of this year. It could lead the RBA to adopt a more dovish tone at an upcoming policy meeting.

Gareth Aird, head of Australian economics at CBA, commented, "The data looks very weak over the last three months and surprisingly soft. If the data is close to accurate, there will be no tax-cut induced rebound in consumption in the national accounts for Q3."

The Australian Bureau of Statistics' monthly household spending indicator (MHSI) revealed a seasonally adjusted fall of 0.1% in September from August, where it had risen by 0.2%. Annual growth slowed sharply to 1.3%, down from 2.7%, marking the lowest level since August 2021 during a renewed COVID-19 outbreak in Australia.

Spending on various categories, including food, cars, healthcare, and travel, totaled A$69.9 billion in September, showing little change from the beginning of the year. Volume-wise, spending declined by 0.4% in the entire September quarter compared to the same period last year, despite a rapid 2.5% population growth and substantial tax cuts that increased consumer finances starting in July.

The MHSI series is set to replace the current retail sales report next year and covers a broader scope, encompassing 68% of household consumption—more than twice the retail survey. It includes spending on new vehicles and petrol, which are absent from retail figures.

Importantly, the survey encompasses various services and should provide a better forecast for household consumption in upcoming gross domestic product (GDP) reports. As a result, the MHSI is poised to became increasingly vital for markets as the retail series is phased out.