Aussies’ spending decline starts as fixed mortgage cliff nears

The first dramatic signs of curtailed consumer spending have been recorded, a Bankwest January consumer expenditure report has uncovered.

According to the Commonwealth Bank Australia (CBA) subsidiary, Western Australians’ spending plummeted in the first month of the new year, with Bankwest’s Spend Trends data showing “significant declines across the board” as record inflationary pressures “compound a Christmas comedown”.

The report tracked the state’s Bankwest customer credit and debit transactions to “provide insights into the community response to changing economic conditions,” with dramatic spending declines becoming evident, the bank explained.

Notably, the number of customers transacting and the volume of transactions both significantly fell month-on-month (-31 per cent and -33 per cent) and year-on-year (-24 per cent and -16 per cent), while the value of transactions grew in both cases (+1 per cent and +25 per cent), the data showed.

Bankwest said the results “aligned with CBA’s retail trade analysis for December”, which showed “WA’s decline in spending of 4.7 per cent the sharpest in the country”, while quarter-on-quarter inflation figures again had WA leading at 3.6 per cent.

Bankwest general manager for Everyday Banking, Philippa Costanzo, said: “It’s clear from January’s Spend Trends data that Western Australians are feeling the impact of inflation and cost-of-living pressures.”

“Spending is tightening across the board, with customers clearly prioritising purchasing choices, which is evident in the significant declines month-on-month and year-on-year in the number of customers transacting and how often.

“Recent figures have shown the continuing growth in inflation, with nation-leading growth in Western Australia, and it’s perhaps no surprise to now be seeing the real-world effect that is having on consumers,” she said.

“We expect challenging economic conditions to be around for some time and we urge any customers experiencing financial difficulties to get in touch with us as soon as possible, so we can work with them to provide support.” Ms Costanzo added.

Biggest declines in discretionary spending

As Bankwest explained, “financial headwinds have combined with cost-of-living pressures to constrict spending across the board”, with every sector declining month-on-month in the number of customers transacting, and the volume of transactions.

Year-on-year data was similar, it highlighted, with only a handful of sectors, mostly those related to the travel sector, which were “coming off a low base”, experiencing growth “of any sort” across the past 12 months.

Highlighted in the data, the biggest declines month-on-month occurred in sectors that “could be considered discretionary”, with discount stores leading the fall in both value (-23 per cent) and volume (-60 per cent), with department stores (-11 per cent and -49 per cent) similar.

Strong travel spending in ANZ data

The inflationary impact from strong travel-related expenditure is also mirrored in the latest Australia and New Zealand (ANZ) banking research released on Friday (10 February).

The major bank has observed ‘resilience in travel’, though overall finding its spending to the 5 February “was similar to early 2022 spending despite considerable inflation.”

According to ANZ economist Madeline Dunk and senior economist Adelaide Timbrell, the composition of spending suggests there is “still appetite” for discretionary purchases.

“Strong growth in travel spending has been key to offsetting weakness in discretionary goods spending in early 2023,” they explained.

“We expect aggregate spending growth to slow through this year as households deal with cost-of-living pressures and rising rates, particularly when mortgage holders roll off their fixed rates.

“The bulk of the fixed rate roll off will occur through mid-2023.

“The release of pent-up demand for travel post COVID restrictions will also fade as more residents enact their travel plans.”

State-by-state trends uncovered

Overall, ANZ data found that travel is keeping discretionary spending afloat – up 18 per cent year on year (YoY), driven by airline and travel agency purchases.

Additionally, it found travel agent spending is now back to approximately 75 per cent of pre-COVID spending while airline spending is two thirds of its 2019 average.

Other key findings confirmed entertainment spending rose 16 per cent YoY.

Retail sales are moderating while spending on non-food retail (ie. shopping) tracked weaker in recent weeks vs early 2022, down around 4 per cent YoY in the week to 5 February, ANZ stated.

It also found that there was very little annual change in spending on groceries and dining/takeaway in early February.

Ultimately, spending was stronger in early February than the 2022 average in Tasmania and New South Wales - but weaker in Queensland, Western Australia and Victoria.

[Related: February cash rate hike continues mortgage pain]