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Australians are splurging on electronics, home cooking and perhaps unsurprisingly, liquor, during the coronavirus pandemic.
With overseas holidays, opportunities to go out, and the daily costs of the office commute all gone, people are using their new-found discretionary cash on a raft of items.
And after years of mounting household debts, savings have now risen to their highest level since 1974, despite the economic downturn, as everyone spends less overall.
Tom Youl, the leader of the industry analysis team at Ibisworld, says that the make-up of consumer spending has changed dramatically under the pandemic.
Early trends such as spending on groceries or home offices have surprisingly continued throughout the year, in what is shaping up to be a retail renaissance.
“There has been a massive swing for all household expenditure from services to retail,” he says.
As of July this year, liquor store spending was up 37.1% compared to June 2019, while electronics were up 33.3%, hardware and garden supplies up 27.5% and homewares up 26.4%.
Exercise equipment has also surged, but clothing and footwear hasn’t, Youl says.
“Clothing and footwear have really bucked the trend of the overall retail rise, and have declined. Why is that? Probably because we can’t go out. There is not a lot of incentive there to buy new clothes.”
Counterintuitively, pharmaceuticals have not done that well either, car sales have “absolutely plummeted”, and streaming services like Netflix are just about doing the same.
“There was a hope of a book renaissance but that did not really eventuate,” Youl says. In fact, book sales dropped sharply in April and May after the initial wave of the virus.
“It’s pretty safe to say that books did not do all that well,” he says.
And despite the gradual re-opening of most states apart from Victoria, pubs and restaurants are still some way off returning to their peak.
Gareth Aird, the head of Australian economics at Commonwealth Bank says that “even with the easing of restrictions”, hospitality “has never returned to the same pre-Covid levels”.
The bank has been tracking the spending done on Commbank cards and savings in its accounts, and noticed the same trends as Youl.
Australians are increasingly cooking at home rather than returning to the restaurants, even if delivered.
“Takeaway has not done as well as expected,” Youl says. “Supermarkets and grocery stores have really outperformed takeaway”.
Aird agrees: “When the pandemic hit, spending at grocery stores went up significantly and has held at that ever since.”
He says it’s somewhat surprising to see the same sectors from the pandemic’s first, frenzied wave performing well.
“The single biggest surprise has been the spending on household goods and equipment. We weren’t surprised that it rose initially, people are working at home, they are probably setting up their home office, maybe a little bit of DIY around the house. But it has actually continued to be strong.”
That boost of course, has mostly been online. And Commonwealth Bank’s data is adjusted for the fact that people are spending more on card now, and less on cash.
Overall, however, the level of spending is still down.
“As a country we are spending less today than we were last year,” Aird says. “The starting point is that Covid has had a negative impact on spending overall.”
And where is that excess money going? “It’s been saved,” Aird says.
As of July, savings in Commonwealth Bank’s accounts are up 14% compared to the same time last year. According to the ABS, disposable incomes rose 2.2% in the June quarter.
“Even though wages and vocational related income fell pretty sharply, Jobkeeper and Jobseeker more than offset those declines,” Youl says. ABS data shows that government social assistance benefits rose 41.6% in the same June quarter.
And after years and years of low wages and mounting debt, households are finally taking the chance to save up, or pay down some debts.
“The savings rate has spiked, it has gone through the roof,” Youl says. “It dwindled from 10% to 5% over the decade to 2020. We’ve had weak wage growth since 2015, more households were entering into debt just to stay afloat. Now, the households savings ratio has risen to 19.8%, the highest since 1974.”
Aird says the bank has noticed many people moving more money into mortgage offset accounts, effectively reducing the interest on their home loan with their extra savings.
And, that trend of higher household income and savings is continuing through the September quarter.
For the end of the pandemic, however far off that is, Youl sees a return to the old composition of spending.
He says that in states such as Western Australia, which have weathered the pandemic, you can already see retail drop and services roar back.
“Since we have been constrained to our homes, that [retail] growth is now starting to taper off,” he says. “States with the least strict lockdowns, like the Northern Territory or Western Australia, retail expenditure has started to decline while household expenditure has started swinging pretty strongly to services.”
And that includes arts, recreation and the broader diet of services spending, not just restaurants and pubs.
Aird agrees, and says the will to spend is there, lying dormant.
“Households are willing to spend money if and when they can,” he says. “All these additional savings have accrued, not because households don’t want to spend money, the reality is they haven’t been able to.
“It’s not that there is not a willingness to spend, there is just not a place to spend.”
Source: The Guardian
Keyword: The pandemic purse: services suffer while Australians spend up on home-cooking and liquor | Business