Consumer Spending in Australia Shows Signs of Recovery

After two years of cautious spending, Australians are gradually opening their wallets again as economic confidence improves. Households that previously cut back are now indulging in small luxuries, lifting retail spending. However, a full-scale boom remains uncertain due to sluggish income growth.

Consumer confidence, which hit historic lows in late 2022 amid rising inflation and interest rate hikes, has been on the upswing. A key consumer sentiment index rose to 95 points in November 2024, marking a significant recovery from the 78-point low in 2022. While pessimists still outnumber optimists, the worst economic gloom appears to be fading.

Retail spending showed promising growth in the second half of 2024, increasing at an annualised rate of 3% when adjusted for inflation. Spending on clothing surged by 7.5% over the same period after experiencing a major slump in 2023. Consumers are also spending more on discretionary goods such as home appliances, dining and entertainment.

Data from major banks reveals that younger Australians have started spending again, while older consumers, benefiting from higher deposit income, continue to outspend younger demographics. The stage three tax cuts, effective from July 2024, have boosted disposable income, with average workers gaining around $30 more per week and higher earners receiving up to $72 extra weekly.

Despite these positive trends, a sustained consumer boom is unlikely without meaningful wage growth. Some recent spending spikes may have been driven by one-off events like Black Friday promotions. Real incomes have remained stagnant for a decade, limiting household purchasing power. Until productivity rises and wages improve, cautious consumer behaviour may persist.

Source: Australian Financial Review, RBA, Statista