“The RBA thinks that consumers have changed their spots, spending and borrowing less than they used to. In this way, the RBA expects that consumers will help make room for the surge in business investment off the back of the resources boom.
Weighing up the evidence, we are much less sure than the RBA that consumers have changed their ways. Certainly, retail sales have been patchy, but sales have understated total consumer spending, which is now growing strongly. Also, nothing seems to be weighing on consumers minds – sentiment is back at boom-time levels and surveys suggest that job insecurity is a non-issue…
To us, this all suggests that consumer spending is likely to surprise the RBA on the high side, risking overheating as the investment boom gathers steam.”
CBA's excellent James McIntyre, who spent 7yrs at Treasury, published some similar thoughts at the end of the week:
"The predominant perception is that consumers are presently cautious, reflected in weakness in key retail segments. With the exception of a few retail segments, consumer spending has actually been growing at around an average pace. Strength in non-retail components, particularly motor vehicles, casts doubt on perceptions of “consumer caution”...
It is difficult to suggest from the data that consumer spending is weak. A more apt description would be that consumers are being selective in their spending. The composition of sales growth casts doubt on the air of consumer caution...
Two of the most significant contributors to growth in household spending in QII were the recreation and culture, and purchase of motor vehicles components. Clearly, households were less ‘cautious’ when it came to purchasing big ticket items like cars, and heading out to the movies, concerts and sporting events...
Very weak retail price growth has been holding down overall consumer inflation. A number of effects are currently at play. An appreciating Australian dollar is reducing the price of imported goods, particularly electronics and imported household items. Competition between retailers has held down increases in food prices. Initially, a pullback by households following the stimulus-boosted early-2009 spending surge weighed on consumption. But this was short lived, in aggregate. Sales in some high profile sectors have remained weak."
