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December saw a 1.8 per cent drop in consumer spending, contrasting strong spending amid the November Black Friday sales, according to CBA’s House Spending Insights (HSI) Index.
Driving this decline was an 8.3 per cent drop in household goods spending. Hospitality, food and beverage goods, and recreation also saw a decline on 2.6 per cent, 2 per cent, and 2 per cent, respectively.
“The fall in household spending in December and subdued growth throughout 2024 emphasises that the consumer remains cautious,” said CBA chief economist Stephen Halmarick.
“As we’ve seen in past years, sales spending on items like household goods was brought forward to October and November to take advantage of Black Friday sales promotions, which resulted in a drop in December.”
These trends have CBA doubling down on its cash rate prediction, with the major bank anticipating a cut of interest rates at the Reserve Bank of Australia’s (RBA) first meeting of the year in February.
“The weakness in spending in December, combined with the improving inflation environment, supports our view that the RBA can begin to lower interest rates at the first meeting of the year in February. We expect 100bp of monetary policy easing through 2025,” said Halmarick.
However, despite a dip between November and December, spending is up from the year prior. Between December 2023 and December 2024, the HSI grew 5.2 per cent. This was driven by an 11.5 per cent increase in insurance spending, 10 per cent in communications and digital, 9.4 per cent in health, and 7.3 per cent in recreation. The only category to see a drop was transport, falling 0.7 per cent.
The annual HSI growth rate rose to 5.2 per cent in December 2024, with the strongest spending categories over the year: insurance (+11.5 per cent), communications and digital (+10 per cent), health (+9.4 per cent), and recreation (+7.3 per cent). The only category to fall in 2024 was transport (-0.7 per cent).
Over the year to December, home owners with a mortgage saw the biggest increase in spending, climbing 3.8 per cent. Meanwhile, those who own a home outright saw a 2.8 per cent increase and renters a 2.4 per cent increase.
How SMEs are handling it
Australia’s small- to medium-sized businesses, despite a rise in consumer spending over the year, recorded revenue drops, said CBA.
In fact, over the last 12 months, 80 per cent of SMEs recorded drops in cash flow. This was driven by declining revenue (35 per cent), low cash reserves (30 per cent), and seasonal fluctuations (27 per cent).
There are measures in place to help mitigate these challenges, with 85 per cent of respondents having a strategy in place to improve cash flows.
CBA executive general manager, small-business banking, Rebecca Warren, said it’s a welcome sight to see the majority of businesses implementing measures to combat challenges.
“For small businesses, success often hinges on a delicate balancing act as they constantly juggle various aspects of their operations, from managing customers and employees to dealing with suppliers and vendors. It’s not surprising that the economic challenges of the past year have resulted in cash-flow impacts for many Australian SMBs,” said Warren.
“While it’s encouraging to see small business owners take proactive steps to manage their cash flow, some of those strategies – like dipping into savings or not paying themselves a salary – may not be what’s best for the business or the business owner for the long term.”
Some of the most popular methods for handling these challenges were reviewing or decreasing expenses (34 per cent), maintaining a cash reserve (27 per cent), finding additional revenue streams (26 per cent), and increasing sales and/or pricing (25 per cent).
Unfortunately, 27 per cent of those surveyed had to resort to accessing personal funds to pay themselves.
With interest rates on the horizon, consumer confidence is expected to pick up, said experts. This could relieve some of the pressure facing Australia’s small businesses.
[Related: Monthly CPI lifts slightly in November]
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