Groceries the only area of planned higher spending, new survey finds
Spending intentions have deteriorated nearly to the record low levels of December last year, with the only area of planned spending increase was on groceries while spending on international travel was back in the negative again, according to this month’s survey by independent economist Tony Alexander.
“Feelings of job security and wage growth expectations have lessened, business profit expectations are down, and people are indicating heightened plans to reduce their debt levels,” Alexander (pictured above) said. “Virtually all the results here will please the Reserve Bank as it seeks confirmation of weak domestic demand following its 0.5% interest rate increase on April 5. But for retailers, winter is set to be extremely challenging.”
A net 42% of the respondents said they were planning to reduce their spending in the next three to six months – a deterioration from -27% in April and the second worst reading on record.
The survey found that groceries were the only area Australians were planning to spend more on – clearly involuntarily.
“Food prices continue to rise and there is no choice other than that people stump up the necessary cash to feed themselves,” Alexander said. “But this surge in the proportion of income having to be allocated to groceries (and servicing debt) comes at the cost of reduced spending on every other item we include in our list.”
A net 13% of people were planning on cutting spending on domestic travel, continuing a downward trend in the allocation of money for this activity.
In contrast, a net 1% were planning on reducing spending on international travel in the next three to six months, the least negative set of intentions for all categories, reflecting “the globally strong desire to travel outside one’s country after the pandemic rendered that option undoable for two to the years.”
Intentions of spending on motor vehicles remained highly negative at -16%.
When it comes to home renovation, net 10% of the respondents said they were planning on cutting such spending – the second-worst result on record. Intentions of spending on furniture and appliances were even worse at -26%
Also seeing a decline in intentions were spending on gardens (-13%), clothing and footwear (25%), technology (-25%), and sports equipment (-20%). Eating out came in last place across all categories on the survey list, with a net 45% of consumers planning reduced spending on this activity.
The net proportion of people planning to spend on a house to live in in the near future has slightly deteriorated, from -3.7% last month to -4.8%.
“This result tells us that much as we may sniff deeply and think we can detect traces of a market turnaround when the wind blows in the right direction, there is as yet no true solidity to that theory,” Alexander said.
When it comes to an investment property, the net proportion of people planning on reduced spending on that asset saw a trend of slight improvement “from terribly negative to just horribly so,” the economist said.
Intentions of purchasing shares have slipped back firmly into the negative this month at -5.8%.
But what are the motivations behind plans to spend more or less?
In the case of groceries, the respondents were planning to spend more simply because they are more expensive.
“Other motivations at play for those planning higher spending on things include anticipation of some asset bargains, rising wealth levels perhaps from recent share price recoveries, and high incomes,” Alexander said. “The wealth effect has well diminished since 2020-21. The effect of bargain anticipation in driving asset interest is still low and the latest reading does not suggest any particular upswell in people waiting in the wings ready to pounce.”
For those planning to spend less, the dominant driving force is a desire to reduce debt, with a record gross 28% of respondents wanting to get their debt down.
“Net confidence about the future has deteriorated a bit this month,” Alexander said. “And expectations for business profits have become weaker. There may be some quietening down occurring with respect to people’s expectations of their wages going up. This is positive from an inflation point of view. This may be because people are starting to indicate declining feelings of job security.”
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