Spending intentions stumble: CBA research

Retail spending intentions have dipped while home buying intentions remain high, according to CBA's latest research.

CBA's Chief Economist Michael Blythe has today confirmed that household spending intentions stumbled in September after the positive lead reported last month. Nonetheless, the series also highlights some underlying improvement in spending intentions more broadly.

The Commonwealth Bank Household Spending Intentions (HSI) series offers a forward-looking view by analysing actual customer behaviour from CBA's transactions data, along with household spending intentions from Google Trends searches. This combination adds to insights on prospective household spending trends in the Australian economy.

Mr Blythe said: "The latest edition of the HSI series shows a disappointing downturn in retail spending intentions.

"While there were some positive signs in sectors where the tax refunds now flowing would most likely be spent, the overall picture is one of continued consumer caution," Mr Blythe added.

Mr Blythe suggested the pull back in retail spending intentions was potentially a sign that interest rate cuts are blunting some of the stimulus from income tax refunds.

"Our view for some time now is that monetary policy changes do little to support household activity. While a positive 'wealth effect' is emerging from rising home prices, consumers interpret rate cuts from record lows as a sign of economic weakness and keep their wallets shut," Mr Blythe said.

Nevertheless, the overall message from the various HSI measures is that spending intentions edged higher in Q3 and have now bottomed out.

"Spending intentions for entertainment, education and motor vehicles are now pointing up," Mr Blythe said.

"Also, importantly, the improvement in home buying intentions is holding up - supported by the RBA rate cuts.

"A positive 'wealth effect' from the housing market should help support broader economic growth in the year ahead," Mr Blythe added.

Household Spending Intentions - October 2019 edition

CBA obtains an early indication of spending trends across seven key household sectors in Australia. Apart from home buying, the series covers around 55 per cent of Australia's total consumer spend across; retail, travel, education, entertainment, motor vehicles, and health and fitness.

Retail Spending Intentions

The lift in retail spending intentions in August was reversed in September.
A deeper dive into the retail spending data does show some response in those areas where income tax refunds are most likely to be spent.
But the pull back is also potentially a sign that interest rate cuts are less effective - consumers interpret rate cuts from record lows as a sign of economic weakness and keep their wallets shut.

Travel Spending Intentions

The trends in HSI readings relating to the more discretionary spending components seem to be falling into two broad categories at present.
Spending intentions in areas perceived as more "frivolous", like travel and entertainment are reasonably soft.
"Good" spending in areas like health and fitness and education are associated with stronger spending intentions.

Home Buying Spending Intentions

Home buying intentions are holding at the high end of the range.
Dwelling prices are responding and a positive "wealth effect" is emerging.
A recovery in wealth should normally reinforce the impact of income tax refunds and the associated boost to disposable income.

Education Spending Intentions

The picture for education-related spending intentions has not changed.
The education HSI retains a solid momentum. And that momentum is lifting.

Entertainment Spending Intentions

Entertainment-related spending intentions are slowly trending higher.
But, as with travel spending intentions, HSI readings are soft overall.

Motor Vehicles Spending Intentions

Motor vehicle purchase intentions remain deep in negative territory.
But spending intentions are slowly edging higher.

Health & Fitness Spending Intentions

Health and fitness spending intentions are growing at a respectable pace.
The trends indicate households are willing to allocate disposable income to driving health and fitness spending with little impact from the vagaries of the economic cycle.

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