Household budgets remain under pressure

No signs of improvement.

Subdued wage growth coupled with discretionary price rises are putting household budgets under pressure but according to new Deloitte retail forecasts, retail spending improved in 2017-18 as consumers dipped into their savings. However, a further pick up in spending is dependent on stronger wage growth.

Retail sales growth in the 2018-19 financial year is expected to remain at around 2.6%, although more of that spending may go to the food sector, which could outpace non-food spending for the first time since 2012-13, according to the economic report from Deloitte.

“The eastern states have seen strong growth supported by strong population growth, particularly in Victoria. The housing boom has begun to unwind in those states that have experienced the strongest economic conditions of late, while Tasmania and ACT are still seeing strong house price growth,” the report said.

“Western Australia and Queensland have been hampered by the big falls in mining investment, but with that now troughed, we expect to see a more even picture across states in 2018-19 in terms of retail sales performance.”

Household goods retailing is influenced by the state of the property market. The recent decline in house prices, particularly across Victoria and New South Wales, is expected to apply downward pressure on demand, which is expected to result in slower growth in sales in the short-term.

As house prices begin to cool, the impetus to spending from wealth is reduced. There is also less incentive to move house – something which is associated with a decent portion of purchases of furniture and whitegoods.

The household goods sector also benefits from improvements in technology and more efficient global supply chains will continue to put downward pressure on prices.

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