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December spending has turned to savings in January

Households spent up in December but in January they began to tighten the purse strings again as omicron made its presence felt across all industries, cutting consumer confidence.

December spending has turned to savings in January
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The latest CommBank Household Spending Intentions Index rose by 2.5 per cent to 115.0 in December, its highest level since the series started in July 2017, with the biggest gains in the travel, transport and retail sectors.

The index – which provides an in-depth gauge of Australian consumer spending – shows strong Christmas trading was boosted by the lifting of delta restrictions, with accumulated household savings during COVID (estimated at $260 billion at the end of December 2021 by CBA economists) also powering the surge.

The survey shows that people were wanting to travel in December with travel spending intentions rising 28.1 per cent during December as a result of the reopening of state borders and an upswing in summer holiday spend.

But although travel-related spending is up 20.9 per cent from December 2020, it remains lower than December 2019. Hotels, motels and resorts, travel agents, tourist attractions, trailer parks, campgrounds and trailer dealer categories have all seen increases, while airline spending remains weak. 

Travelling also impacted transport spending intentions that jumped 11.8 per cent in the month, with higher petrol prices a key factor as spending at service stations continued to lift, along with spending on taxi services, tolls, car washes and trailer rentals. However, transport spending intentions are still below pre-COVID levels, with public transport spending still weak due to the shift to working from home.

Consumers wanted to do more retail shopping in December with retail spending intentions rising 10.8 per cent and are 2.8 per cent higher than December 2020, driven by increases in spending on speciality retail stores, department stores, clothing stores, electronic stores, jewellery and watch stores and hardware stores. Interesting, spending at liquor stores fell as consumers continued to shift to eating and drinking outside the home.

CBA senior economist Belinda Allen said the household spending data for December showed a sustained recovery from the delta lockdowns, although increased numbers of people isolating due to the omicron virus have been impacting spending levels in January.

“December is generally a seasonally strong time for retail due to Christmas shopping. However, this was compounded by the fact that December 2021 marked the end of restrictions post Delta and there was accumulated household savings, which led to a strong surge in spending,” she said.

“The boost in the travel and transport sectors reflects increased mobility around the country in December. Domestic tourism (such as driving holidays) lifted spend, while we continued to see reduced air travel due to availability. This flowed through to higher spending in other related sectors.

“The Omicron variant, which has led to a surge in COVID cases late in December and into January, is an important development to watch. It is impacting the demand and supply side of the Australian economy. We can see from our high frequency credit and debit card data there does appear to be a fall in spending in January, with spending on services more impacted than goods spending.

CBA economist Stephen Wu noted that consumer spending had already dropped by around 3 per cent over January as a result of the latest spike in COVID cases. 

“It is important to note that there is always a high degree of volatility around spending over the Christmas and New Year period,” he said. “But our assessment at this stage, based on our internal data, is that the surge in COVID cases over the past three weeks has resulted in around 3 per cent less spending over the period than would otherwise have been the case. This is not a bad result considering the huge number of people that have been required to stay at home.

“With a large number of people in isolation we have seen spending on services slow sharply. However, spending on goods has held up well. Online spending growth remains firm, while in-store spending is a little lower.

“Unsurprisingly, spending on transport and recreation has slowed in recent weeks. Spending on alcohol consumed outside the home has also fallen, although spending on eating out has been broadly steady.

“Given the number of COVID cases, spending on medical and healthcare has been strong over recent weeks. This category includes spending in pharmacies. Purchases of rapid antigen tests, pain relief and other supplies to help with the virus is likely supporting spending in this category.

“By state, WA is the stand out with spending accelerating in recent weeks. There are very few COVID cases in WA and this is reflected in strong spending across a number of categories.”

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