Consumers on spending strike amid 0.6 per cent economic growth

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This was published 6 years ago

Consumers on spending strike amid 0.6 per cent economic growth

By Eryk Bagshaw and Peter Martin
Updated

Bill shock – or the fear of it – shut wallets across the country in the three months to September as alarm about rising energy prices drove people away from shops, healthcare, hotels and cafes.

Spending on almost every discretionary purchase was down in the September quarter, as spending on almost every unavoidable expense increased, led by electricity and rent. The outcome was a net increase in household final consumption of just 0.1 per cent, the weakest result since the 2008 global financial crisis.

Household saving climbed for the first time in five quarters.

"This isn't surprising given the cost of living pressures on essentials," Treasurer Scott Morrison told a Canberra press conference.

"We intend to provide income tax relief whenever and wherever possible": Treasurer Scott Morrison.

"We intend to provide income tax relief whenever and wherever possible": Treasurer Scott Morrison. Credit: AAP

"Concerns around electricity prices were at the front of mind in the September quarter and remain there. We saw large price increases from July 1 and the Turnbull government responded."

An apparent rebound in retail spending in October gave the Treasurer grounds for cautious optimism about the December quarter.

Offsetting extraordinarily weak consumer spending in the September quarter was a 2 per cent bounce in private spending on buildings and other capital equipment and a 7 per cent surge in government capital investment. The economy grew by a weaker than expected 0.6 per cent in the quarter and 2.8 per cent through the year. GDP per capita, a measure that adjusts for population growth, climbed just 0.2 per cent.

"The news on business investment is good; the mining investment decline has nearly finished and non-mining investment is improving," said AMP chief economist Shane Oliver. "But consumer spending is being dragged down by low wages growth, slowing wealth accumulation, poor sentiment, high debt levels and rising energy costs."

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"Until now consumers have dipped into savings to increase consumption. Solid gains in wealth from strong home price growth in Sydney and Melbourne have given them confidence, but it's doubtful they will want to keep running down savings as those price gains fade."

BIS Oxford chief economist Sarah Hunter said extremely weak consumer spending was a sign that many households were struggling with anemic wage growth and rising prices for essentials.

But it wasn't all bad news. Rapidly growing employment had pushed up the wage bill 1.2 per cent in the quarter, even though wage rates climbed by nowhere near as much.

Labor treasury spokesman Chris Bowen said businesses were feeling good, but households weren't.

I would hope that Australians are feeling like they are in a position that they can go and celebrate this holiday season.

Treasurer Scott Morrison

"The lowest household consumption growth since the global financial crisis suggests that cost of living pressures and record household debt are weighing on spending habits," he said.

"This is not surprising given workers are struggling to get a decent pay rise and the Turnbull Government is cutting their penalty rates, and their debt levels are rising faster than their incomes."

Victoria was Australia's top-performing state when measured on a trend basis in order to smooth out quarterly fluctuations. Victorian state final demand climbed 1 per cent in the quarter, compared to 0.5 per cent in NSW and Queensland, 0.8 per cent in South Australia, 0.7 per cent in the Northern Territory, 0.4 per cent in the ACT and Western Australia and growth of zero in Tasmania.

Mr Morrison said much of what happened in the December quarter would depend on Christmas spending. In the new year he would be in a position to talk about tax relief.

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"I would hope that Australians are feeling in a position where they can go out and celebrate this Christmas and holiday season," he said.

"I am sure their kids are hoping that they will be spending, too."

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