Spending stalls

THE strain of low wages growth and higher power bills on household budgets led to a pause in retail spending growth in July.

Spending was steady at $26.1 billion, missing market expectations of a rise of 0.2 per cent from June.

The end of a three-month run of growth reflected a retail sector struggling with declining consumer sentiment, rising household debt, stagnant wages growth and a 15-20 per cent rise in utility prices on July 1, economists said.

RBC Capital Markets senior economist Su-Lin Ong said there could be further weakness in the months to come.

“(The) data and the challenges for households ahead suggest a more modest pace of consumption in the current quarter and likely beyond.”

Sales of household goods fell by a seasonally adjusted 1.7 per cent in July, and department store sales dropped 2.8 per cent, the third consecutive monthly slide.

But sales of recreational goods, including sports equipment and toys, was up 2.5 per cent, and spending at cafes and restaurants up 0.2 per cent.

AMP Capital senior economist Diana Mousina said spending was shifting away from traditional retail outlets towards services such as holidays, recreation and eating out.

But consumer sentiment is also low and wages growth is not keeping up with inflation.

“These cyclical pressures are unlikely to abate any time soon and may get worse due to rising utility prices, the high Australian dollar shifting demand for retail goods offshore and the impact of Amazon’s physical arrival in Australia,” Ms Mousina said.

JP Morgan economist Tom Kennedy said it was hard to see where a genuine acceleration in household spending might come from.