Spending on essentials was a little higher as households coughed up more on medical services thanks to an especially strong flu season and forked out more to keep the lights on as energy bill relief ended in states such as Queensland and Western Australia.
But it’s spending on non-essentials including holidays, concerts and eating out, that generally gives us the best idea of how households are feeling.
This non-essential spending jumped 1.4 per cent in the June quarter. And according to Commonwealth Bank’s head of Australian economics, Belinda Allen, who gets to see overall, anonymised data from the bank’s huge customer base, it’s not just older or richer Australians starting to enjoy themselves a little more. Younger and lower-income households – which scrimped the most over the past few years – are finally regaining their mojo.
Non-essential spending has jumped. Credit: Trevor Collens
The bureau’s head of national accounts, Tom Lay, says end-of-financial-year sales and new product releases helped nudge people to spend more on things including furnishings, cars, and recreation and culture goods: things such as books, music and sporting equipment.
Australians also took advantage of the closeness of Easter to Anzac Day this year to extend their holiday break, meaning they ended up spending more on services such as hotels, cafes and restaurants and artistic, sporting or cultural experiences.
Loading
But Allen points out there are also some broader economic drivers of households’ willingness and ability to spend.
While many of us are still facing a cost-of-living crunch (prices, after all, aren’t going backwards for the most part), there has been a slowdown in price rises of most things. The latest inflation figure for consumer prices, for instance, came in at 2.1 per cent in the year to June – well down from the peak of 7.8 per cent in December 2022.
Then, there’s the growth in disposable income (the money households have left to spend or save after tax). Over the past year or so, wages have climbed a bit faster than inflation, meaning many households have a bit more cash to play with.
Add to this, the fact that interest rates have been coming down. This year, the Reserve Bank has cut rates three times, saving many mortgage holders hundreds of dollars a month in repayments.
Finally, Allen says there’s been a notable fading in the “scarring effect”.
Essentially, households have been “scarred” from the pandemic and inflation surge, preferring to save and continuing to be cautious about spending even as their financial situations have improved.
Treasurer Jim Chalmers: “This is the private sector recovery that we were planning for, preparing for and hoping for.”Credit: Dominic Lorrimer
But that’s beginning to change. The household saving ratio – the share of disposable income people choose to save – has dropped to 4.2 per cent in the June quarter. That’s down from 5.2 per cent in the three months to March, and below its pre-pandemic average of about 5 per cent. Households are becoming happier to spend rather than save.
For some time following the pandemic, Australia’s economic growth was being propped up by two things: population growth and government spending. In fact, without these things, Australia would have dipped into a recession last year.
Loading
Government spending still grew by 1 per cent in the June quarter, largely because of stronger federal government spending on social benefits including Medicare and the Pharmaceutical Benefits Scheme (again, partly because of the strong flu season). While state and local government spending dropped, mostly because of the winding down of energy bill relief measures, federal government spending was also higher because of spending to run the election in May and a step-up in defence spending.
But combined with less investment spending by the government on things such as building infrastructure, the overall effect of government spending on economic growth was zero.
That’s a good thing according to Treasurer Jim Chalmers, who told journalists this week that the private sector was now taking its “rightful” place as the primary driver of growth. “This is the private sector recovery that we were planning for, preparing for and hoping for,” he said.
Private business investment rose 0.1 per cent but made no significant contribution to overall economic growth, while net international trade (the real value of exports minus imports) helped to expand the economy slightly. Iron ore production ramped back up after suffering some setbacks because of bad weather in the March quarter, while a strong grain harvest added to the country’s exports.
GDP per person ticked up a little to 0.2 per cent in the three months to the end of June (a better result than the falls we’ve been seeing for much of the past two years), meaning our economy isn’t just growing because there are more people.
Continued strength in spending could also mean fewer interest rate cuts.Credit: Dion Georgopoulos
Reserve Bank governor Michele Bullock, taking questions after a lecture at the University of Western Australia this week, said the bank had expected the increase in household spending but that it was a gradual recovery with people searching for bargains.
“For some time, we have been predicting that the Australian consumer would start to spend a bit more,” she said. “Real disposable incomes have been rising for about a year now, wealth is rising because housing prices are rising, and normally under those circumstances, you would expect to see consumptions starting to rise.”
But Bullock also warned that continued strength in spending could also mean fewer interest rate cuts to come. “It’s possible that if [household spending growth] keeps going, then there may not be many interest rate declines left.”
That might be bitter news for those with big home loans to pay off. And the economy still has to grapple with the stubborn problem of stagnating productivity. But alongside historically low unemployment, and inflation within the bank’s target band, the latest GDP figures are a sign of the end to a long winter for many Australians.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
