Christmas figures show consumers spent up, especially at cafes and restaurants

Consumers celebrated their first uninterrupted Christmas in years by spending up at cafes, restaurants and travel, but a slowdown looms.

Retailers reported strong spending from consumers this Christmas. Picture: Tony Gough

Shoppers were “still broadly willing” to spend over Christmas, despite the impact of higher inflation and interest rates, although a decline is likely over the year, Macquarie brokers say.

Analysis of consumer data undertaken by the investment bank found spending was resilient, particularly in restaurants and cafes which was higher relative to previous years as shoppers spent more per transaction.

“For the time being, it appears that consumers are happy to continue splashing out cash, particularly for services,” the bank’s brokers wrote in a note.

“Spending at cafes, restaurants and takeaway retailers has risen as Covid restrictions ease and people venture outside of their homes.

“Increased groceries spend is likely, in part due to food inflation. Although home improvement spend has been in decline over 2022, it remains higher than pre-Covid levels,” the note reads.

“Like eating out, spend in travel-related products (and) services surged into the end of the year. The appetite to travel remains high despite higher-than-normal airfares.”

The analysis found interest in consumer electronics was lower than in previous years, although the total spend was buoyed by price inflation.

“However, we note that store-level anecdotal feedback indicated that Christmas was positive for sales, with a similar performance to Black Friday,” the note reads.

The latest research from Macquarie – pointing to higher consumer spending in the weeks before Christmas – matches similar reports from the Australian Retailers Association and Westpac, which showed a festive season spending splurge that defied all expectations.

Last week, the ARA reported pre-Christmas spending reached a record $74.5bn – up 8.6 per cent on last year. According to figures from the ARA in partnership with Westpac DataX, Boxing Day trading also recorded exceptional growth – up 15.3 per cent from last year – to $1.23bn.

November retail sales data, to be released later this week, is also expected to show a turnaround from October when it fell 0.2 per cent, due to the success of Black Friday and Cyber Monday sales in the lead-up to Christmas.

However, analysts are worried the weight of the official cash rate rises on interest rates since May – with another tipped for February – could finally rein in spending from consumers.

“We expect a slowdown in consumer spending in 2023, following a bumper couple of years,” Macquarie’s brokers wrote.

“It appears that consumers were still broadly willing to spend this Christmas despite inflation and interest rate pressures weighing on budgets.

“We remain cautious of a decline in consumer spending over 2023 as cost-of-living and macroeconomic pressures continue.”

The market is watching for the latest sales data from ASX-listed retailers; JB Hi-Fi, Universal Brands and Michael Hill are due to report sales updates next week, while Myer will report in late January.

Anecdotal evidence collected by Macquarie analysts suggested customers “had a big focus on sale items and generally avoided full-priced products, although this is expected given the promotional activity over the festive period”.

“Promotional activity over the period has been normal, with no excessive discounting. Some retailers have continued sales into the new year, particularly in apparel and footwear,” they wrote.

“Staffing is not an issue in most stores although some have flagged that younger staff are having high turnover rates.”