Small business warned as retail spending falls

By Nick Hall | 15 Oct 2019 View comments

Australian small business may be in for another lean month, quashing a brief spark in retail spending that had operators optimistic for the pre-Christmas trade period.

According to the Commonwealth Bank’s Household Spending Intentions report, Australians have once again returned to their more cautious ways, suggesting previous predictions that the economic corner had been turned were premature.

Back in August, a brief rise was met with much positivity from the retail and franchising sectors, however the September retail spending results revealed another drop had hit the market.

“While there were some positive signs in sectors where the tax refunds now flowing would most likely be spent, the overall picture is one of continued consumer caution,” chief economist Michael Blythe said on Tuesday.

The retail spending reports are based on data tracked from actual Commonwealth Bank transactions and household spending intentions from Google Trends searches.

Blythe suggested that the drop in retail spending was potentially a sign that recent interest rate cuts had blunted some of the stimulus from income tax refunds.

“Our view for some time now is that monetary policy changes do little to support household activity,” he said.

“While a positive ‘wealth effect’ is emerging from rising home prices, consumers interpret rate cuts from record lows as a sign of economic weakness and keep their wallets shut.”

According to Blythe, the challenging economic conditions appear to have hit households hard, with the government’s wealth-swelling initiatives doing little to bolster families and retail spending.

Over the course of the year, interest rates have been cut to record lows three times, dropping to just 0.75 per cent, leaving treasurer Josh Frydenberg to rely heavily on income tax cuts to pump more money into the economy.

Regardless, the initiatives have had little impact on the domestic housing market, which continues to rebound, especially in Sydney and Melbourne.

“The improvement in home buying intentions is holding up – supported by the (Reserve Bank) rate cuts,” Blythe said.