In March, New South Wales experienced a notable upswing in spending, rising by 2%, surpassing the national average. Western Australia maintained its position as the strongest state with a year-to-March increase of 4.3%, while the Northern Territory recorded the weakest performance at -0.9%, joining Tasmania, Victoria, and the ACT below the national average.
Although 10 out of 12 spending categories saw increases in March, the growth was modest overall, and the Household Spending Intentions (HSI) Index remained below the November 2023 reading of 142.6. This suggests a softening in household spending since the last Reserve Bank of Australia (RBA) rate hike in November.
Of note, spending on household goods decreased for the third time in four months (-1.7%), indicating that households are reallocating their budgets away from non-essential items. Additionally, recreation spending declined by 6.8% in March, following a surge in spending during summer music events. Spending on household goods has turned negative for the year, while recreation spending has seen a modest increase of 0.4% year-to-March. These trends align with a 4.4% increase in spending on essentials compared to a 1% increase in discretionary spending.
According to CBA Chief Economist Stephen Halmarick, despite a boost from Easter, the March HSI suggests continued softness in consumer spending. He attributes much of the spending lift to the earlier Easter holidays, with people traveling and entertaining at home. However, beyond food and beverage and transport, gains in other categories were modest.
Halmarick notes that the annual rate of increase in the HSI Index remains steady at 3.4%, which, when adjusted for inflation of 3.5-4%, suggests flat real growth. He maintains the view that the RBA could begin lowering the official interest rate in September this year, given consistently soft household spending and decelerating inflation.
Despite economic challenges, Australians displayed generosity in March, with a 1.4% increase in household services spending categories, partially driven by increased spending on charities.
The CommBank HSI index tracks month-on-month data at a macro level and is derived from de-identified payments data from approximately 7 million CBA customers, representing around 30% of all Australian consumer transactions.
