Australia’s national accounts showed soft real GDP growth of 0.8% for the September 2024 quarter.  While household income growth was strong, consumer spending was softer. Year-on-year nominal consumer spending rose 4.1%, or 0.4% in real terms, which is below long-term trends. Households lifted their savings in the September quarter with more than half the tax cuts saved. While spending was soft, the strength of income growth and stored up savings make us positive that retail sales growth will continue improving from here.

We have updated our retail sales forecasts, which are modestly higher in FY25e and slightly lower in FY26e. We forecast FY25e retail sales growth of 3.2% (prev 2.9%) and the largest driver of our revisions is stronger non-food online sales growth. A retail recovery is underway, because this year has unquestionably strong household income growth, which sets a solid base for retail spending. However, households have a low savings rate, which detracts from the upswing. We expect a more notable pick up in household goods and online with softer sales in dining out for FY25e.

Australia’s national accounts showed that retail continued to miss out on spending growth in the June 2024 quarter. Total consumer spending rose 5.2%, while retail spending only increased by 1.8%. Households have continued to use some of their stored-up savings to maintain spending habits. The good news for retail is the reset, or mean reversion lower of retail spending, has now largely played out. We expect improved income growth and a better share of wallet for retail to result in slightly stronger retail sales growth in FY25e.