Australian household spending rose 0.8% in June, extending a run of discretionary spending growth that one economist has called surprising given ongoing cost-of-living pressures.
The June rise followed a 1.2% lift in May and a 1.0% fall in April, with transport spending up 3%, driven by new vehicle sales as the standout performer, according to Tom Lay, ABS head of business statistics.
Electric vehicle sales continued to take a growing share of the market as households adjusted to elevated fuel prices, while air travel spending also strengthened as it returned to pre-disruption levels following the Middle East conflict that began in March.
"The 1.4% rise in recreation and culture came from a few categories in June, with households spending more on electronic goods, performing arts and other live entertainment, and gambling activity likely supported by major sporting events," Lay said in a media release.
Fuel spending volumes rose even as prices fell, with the ABS noting a 7.8% increase in fuel volumes against a 10.9% drop in prices, partly reflecting the temporary fuel excise cut that ran until the end of June.
The quarterly picture backs this up. Westpac economist Luka Belobrajdic noted that Q2 spending increased 1.3% for the quarter, with volumes up 0.7%, "pointing to a modest acceleration in price growth through the quarter."
Westpac observed that discretionary spending outperformed non-discretionary categories across all states in the quarter, a trend it flagged would inform its household consumption forecasts ahead of the national accounts due 2 September.
The trend has caught the attention of small business economists, who say it cuts against the usual pattern of belt-tightening during periods of financial pressure.
"It's surprising to see the ABS data showing discretionary spending rose at a higher rate than spending on essentials. With the ongoing cost-of-living pressures, we'd expect budgets to be skewed towards the expenses that can't be avoided like mortgages, rent, and fuel," Xero economist Louise Southall said.
Xero's Small Business Insights data found small business sales grew 6.5% year-on-year in the June quarter, though retail trade, hospitality, and arts and recreation, all discretionary sectors, recorded the weakest sales growth.
Southall said this points to households channelling discretionary dollars toward big businesses rather than smaller, local operators, and Xero's modelling suggests shifting just 10% of household spending to small businesses could inject an additional $76 billion into an economy of more than 2.7 million small businesses employing over five million people.
For more insights on the ABS data, read the Westpac commentary.
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