Household Spending Slows as Consumers Pump the Brakes on Discretionary Spending

The monthly CommBank Household Spending Insights (HSI) Index fell 1.0 per cent in April to 148.11 following an early Easter bump in March, with annual spending growth slowing to just 2.6 per cent for the year.

The Index remains below the 149.7 peak in January 2024, and while spending on essentials like Education (+3.7 per cent), Utilities (+2.5 per cent) and Motor Vehicles (+1.7 per cent) rose in the month, consumers pulled back when it came to spending on Food & Beverage (-3.8 per cent), Hospitality (-3.3 per cent) and Recreation (-2.6 per cent) which dragged the Index down. In fact, spending across all discretionary categories fell 4.4 per cent in April.

The April HSI report features the addition of new Home Ownership Insights assessing spending across home ownership types. The insights revealed the challenges faced by renters whose spending has grown just 1.3 per cent annually compared with mortgage owners (+4.5 per cent) and outright owners (+6.3 per cent). Another new inclusion in the April report is a per capita analysis of the Index taking into account strong population growth, which shows an annual spending growth rate of just 1.4 per cent compared to 2.6 per cent for the traditional HSI.

Across the states, Victoria continues to show weakness, with spending down 1.2 per cent for the month and up just 1.9 per cent for the year. South Australia (+0.3 per cent), Tasmania (+0.3 per cent) and New South Wales (+0.1 per cent) showed spending resilience over the month, while Tasmania is now the strongest spending state growing at 4.0 per cent annually.

CBA Chief Economist Stephen Halmarick said the fall in April reflected an ongoing softening of household spending.

“The April HSI paints a picture of a constrained consumer following an early Easter bump in March. Significantly, the annual rate of household spending has fallen from 3.9 per cent in March to 2.6 per cent in April, led by a large drop off in discretionary spending, which is down 4.4 per cent in the month,” Mr Halmarick said.

“We can see from the new Home Ownership Insights included in this month’s report that renters in particular have cut back, with spending just inching higher at 1.3 per cent over the year, while those who own their home outright experienced the strongest spending growth at 6.3 per cent annually.

“Across the states, spending in Victoria continues to be subdued as NSW pulled away to sit with South Australia and Tasmania as the only states to post spending growth for the month. Western Australia declined 0.2 per cent in April to lose its mantle as the strongest spending state over the year.

“We expect weak consumer spending and below-trend economic growth to continue throughout 2024, and despite recent inflation data surprising to the upside, we anticipate the RBA will cut interest rates in November this year.”

CBA is forecasting the RBA will lower the cash rate by 25bp to 4.1 per cent in 2024.

The CommBank HSI index – which tracks month-on-month data at a macro level and is based on de-identified payments data from approximately 7 million CBA customers, comprising roughly 30 per cent of all Australian consumer transactions – also showed sharp differences among certain states and territories.