Retail spending rebounds in August on warm weather, Father’s Day sales

Labor’s overhauled stage three tax cuts — and strange weather — have been credited with driving consumers back to shops, cafes and restaurants, but a lack of spending in one area raises alarm.

Following months of weak growth, retail spending rose by 0.7 per cent in August. Picture: NewsWire / John Appleyard

An unseasonably warm end to winter and early Father’s Day sales drove shoppers back to stores, cafes and restaurants in August, as consumers benefited from the extra income delivered by Labor’s overhauled stage 3 tax cuts.

Retail spending rose 0.7 per cent in August, the Australian Bureau of Statistics reported on Tuesday, well outpacing economists’ expectations of a 0.4 per cent increase. That followed growth of 0.1 per cent in July.

The increase in August brought annual spending growth to 3.1 per cent, its fastest pace since May 2023.

The stronger-than-expected rise in retail sales is likely to further dim the prospect of a pre-Christmas rate cut by the Reserve Bank, which expects household consumption to recover in the second half of the 2024 as a result of income tax relief and easing inflation.

The Bureau of Statistics attributed the rebound in retail spending to the warmest August since 1910, which encouraged shoppers to purchase items typically bought in spring.

“This included summer clothing, liquor, outdoor dining, hardware, gardening items, camping goods and outdoor equipment,” the ABS’ head of business statistics Robert Ewing said.

Oxford Economics’ head of macroeconomic forecasting Sean Langcake said the August retail figures showed some early signs that the $23bn stage three tax cuts – the benefits of which are skewed towards low and middle income earners – were boosting consumer spending.

“Retail sales have outperformed expectations in each of the last two months, maintaining a relatively high level last month and recording strong growth in August,” he said. “This is positive for the growth outlook and will help maintain momentum in the labour market.”

But Mr Langcake warned that the uptick in retail spending was unlikely to assist the RBA in its efforts to tame inflation, at a time when interest rate cuts were not expected until February 2023 by investors and most economists.

“Additional consumer demand will do little to help ease current inflation pressures,” he said.

That view was shared by Citi economists who said the strong retail spending in August was a reminder for the RBA to not rush into rate cuts.

“The board needs to be patient to assess the full impact of stage three tax cuts,” Citi economist Faraz Syed said.

Through August, the retail turnover was broadbased, with spending in department stores posting the largest increase, up 1.6 per cent, while purchases on clothing, footwear and personal accessory retail rose by 1.5 per cent. The ABS’ ‘other retailing’ category – which includes cosmetics, sports and recreational goods – also climbed 1.3 per cent.

“The lift in turnover from the warmer weather was also boosted by higher discretionary spending as consumers took advantage of Father’s Day sales events during the month,” Mr Ewing added.

Dining out at cafes and restaurants and on takeaway meals rose 1 per cent, while food retailing climbed 0.6 per cent.

Spending on household goods was the only industry to post a decline in turnover, down 0.3 per cent, however this followed several months of elevated spending as shoppers took advantage of mid-year sales.

All states and territories saw higher retail spending in August. Victoria led gains, up 0.9 per cent, while Western Australia, at 0.4 per cent, and South Australia, at 0.3 per cent, experienced smaller increases.

However, other economists remained unconvinced the rise in retail sales spelt a rosier picture for consumers in the months ahead, with the August figures driven in part by temporary factors.

“We’re not particularly confident that a vigorous rebound in consumer spending will take hold,” Capital Economics’ Abhijit Surya said.

“It bears mentioning that income tax cuts seem to be doing little to boost spending on white goods, with sales of household goods falling in August,” he added.