The latest research into the outlook for consumer spending, released today by AMP Capital's Econosights, reveals the extent to which government subsidies have been supporting household spending. And those subsidies are slated to wind down.
Diana Mousina, Senior Economist at AMP Capital, highlights that the impacts of COVID-19 have hit spending in the consumer services area especially hard. And lockdowns and social distancing have caused some changes in consumer spending habits that are likely to be permanent.
Online shopping, for example, peaked at 11% of total retail spending since the virus emerged Down Under, where pre-virus it had peaked at 7%. Today's higher spending on household goods rather than dining out and travel are temporary, but they won't return to normal until sometime after COVID-19 is eradicated or controlled.
Government support
Mousina says that the increased unemployment, and hence lower total wages, have been more than offset by government handouts. In fact, total consumer incomes are up by a net amount of roughly $5,000 over the past 6 months.
Alongside the overall fall in consumer spending, this has seen an increase in the savings rate. While the official data has not been released yet, Mousina estimates the savings rate in June quarter was around 10% compared to 5% prior to the viral outbreak.
But this windfall is unlikely to continue. The unemployment rate today stands at 7.5%, but is forecast to rise to 9.5%–10% by the end of the year. No annual salary growth is expected until mid-2021.
This comes as government subsidies are scheduled to fall. In October, JobKeeper payments will fall from $1,500 per fortnight to $1,200. And in January the payments are meant to fall to $1,000. The coronavirus JobSeeker supplement is also heading lower. While it's been extended to the end of the year, the payment rate is dropping from $550 per fortnight to $250.
The outlook
With that in mind, AMP Capital doesn't expect to see positive annual growth in consumer spending until mid-2021. In the meantime, the biggest impact of COVID-19 restrictions will continue to be on travel, dining out, and recreation. However, the big rise in spending on household goods is unlikely to continue, with consumers having brought their spending on durable goods forward.
AMP Capital forecasts total consumer spending will stay 5%–10% below what it was before the viral slowdown until mid-2021. With consumption making up 60% of Australia's economy, that in turn will crimp GDP growth. It should also see interest rates and bond yields remain low.
Foolish takeaway
Continued social distancing could see further pressure on traditional shopping centre shares, like Scentre Group (ASX: SCG) over the coming months. And it could continue to benefit the share price of online retailers, like Kogan.com Ltd (ASX: KGN).
