The National Accounts results make for stimulating reading for consumer-facing businesses because household income growth has accelerated at the same time as cost of living pressures have eased. Financial conditions are good. The March 2025 quarter showed household income growth of 6.7% with consumer spending rising 4.2%. Households are now saving 5.2% of their income. The dilemma in our mind is whether conditions accelerate from here. We expect the rate of retail sales growth, currently trending at 4%, to persist over the next 12 months. While interest rate cuts will help, a slowdown in population and lapping the income tax cuts means income growth is actually likely to slow a little, making it hard to see an acceleration in retail sales growth.

Australian national accounts for the December 2024 quarter paint a clear picture on the drivers of a noticeable improvement in retail spending over that time period. Household income rose 5.6% with wages growth of 6.1%. Retail spending was up 4.0%. It appears close to half the tax cuts have been spent and non-retail spending is no longer crowding out spend. From here, sales growth should improve modestly as retail captures its fair share of the wallet. A slowdown in population growth of circa 0.5% needs to be taken into consideration as a partial offset and, along with low prevailing savings rate, informs our view that the retail upswing will be modest over the next 12 months.