In latest report.

The combination of weak wage growth and falling house prices is weighing on consumer sentiment, according to the Deloitte Retail Forecasts subscriber report.

Retailers are reportedly optimistic leading into the Christmas trading period despite difficult operating conditions, but Deloitte Access Economics partner and Retail Forecasts principal author, David Rumbens asks if this confidence is misplaced?

“While 2018 has been pretty good for retailers, it’s also been yet another year where spending growth has exceeded income growth. This is evidenced by the household savings rate falling sharply,” he said. 

“For some consumers, it’s meant more spending on the credit card, for some it’s redrawing equity, and for others it’s putting less away for a rainy day. That’s been fine while wealth has been increasing. But with Sydney and Melbourne house prices now falling, consumers are running on empty and there will be some tricky transitions for next year.”

Deloitte’s David Rumbens

Wage growth needed as housing market deflates

Australian households face a potentially sizeable reduction in wealth as the property market falls. Property prices have now fallen for 13 consecutive months, with falls in Sydney and Melbourne driving national losses.

Tighter credit availability has reduced demand, especially among investors; this, combined with a continued increase in housing supply, is exposing what was significant over-valuation.

“The good news though is labour income growth is rising. Australia’s labour market added 216,100 additional jobs in the year to October 2018, helping drive the unemployment rate lower,” he said

“The tighter labour market conditions have helped wages edge higher, but this is as low process. Labour income will need to keep rising to offset the drag to consumer spending from lower Sydney and Melbourne property prices.”

“With the housing market in a downswing, we are moving home less often, and soon there will be fewer new homes built. So there is less excuse to upgrade consumer durables.

“We expect consumer spending to swing towards food, clothing, smaller items and services and away from big ticket spending. That might even out across the retail sector but there will be individual winners and losers.”