Not even the Taylor Swift ticket frenzy has been enough to reverse a significant decline in discretionary spending as gloom about high interest rates and inflation convinces cash-strapped consumers to cut back.
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Purchases of furniture, clothes, household goods and entertainment dropped by 0.6 per cent in May while outlays on essentials like food, fuel and utilities jumped 6.9 per cent, according to the Australian Bureau of Statistics.
The spending behaviour of Canberrans reflected the national trend. The amount they spent on food and fuel climbed 7 per cent while purchases of clothes fell 14 per cent, alcohol and tobacco dropped 8.3 per cent and furniture purchases were down almost 5 per cent.
The findings have been echoed by the Commonwealth Bank's household spending intentions index, which combines the bank's card transaction and loan figures with Google search data.
The index found consumer purchases slowed to an annual rate of just 2.4 per cent in June, down from a high of 15.2 per cent reached in August last year.
Commonwealth Bank chief economist Stephen Halmarick said it was "very clear there is a slowdown household spending".
![Household spending on entertainment has fallen despite the Taylor Swift ticket frenzy. Picture by Sitthixay Ditthavong Household spending on entertainment has fallen despite the Taylor Swift ticket frenzy. Picture by Sitthixay Ditthavong](/images/transform/v1/crop/frm/202296158/f4cdddfe-554b-4158-ba94-de599221c4df.jpg/r0_0_5000_3385_w1200_h678_fmax.jpg)
Mr Halmarick said the downturn was being driven by sharp declines in discretionary spending as many families feel the pressure from rising living costs, not least soaring rents and mortgage repayments.
The index found that, Taylor Swift notwithstanding, the amount households were willing to spend on entertainment fell 5.3 per cent last month to be down 14.3 from a year earlier.
Hard-pressed consumers also appear to be shaking off the travel bug. Spending on hotels and resorts is falling, contributing to a drop in travel outlays of almost 8 per cent in the past 12 months.
The other major category to register a significant fall in spending was health and fitness, which shrunk 5.6 per cent in June to be down 5.8 per cent from a year earlier.
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Mr Halmarick said that instead, families were having to spend more on essentials like energy and water (up 7.2 per cent), education (up 8.7 per cent) and childcare, heating and home maintenance (up 7.8 per cent).
One of the surprises was a 3.8 per cent increase in car purchases in June, which the CBA economist attributed to people increasingly switching to electric vehicles and more vehicles being delivered as a global backlog of orders eases.
The findings are backed up by evidence that consumers remain wary about the economy and their financial prospects despite the continued decline of inflation.
The Westpac-Melbourne Institute consumer sentiment index rose 2.7 per cent following last week's interest rate pause but the 81.3 point reading shows households continue to be "deeply pessimistic", Westpac chief economist Bill Evans said.
The survey found that almost half thought the rate pause would be temporary and the central bank would hike more in coming months.
"Consumers are still clearly very nervous about the outlook for interest rates," Mr Evans said.
He warned that gloom about the outlook was likely to persist for some time.
"Sentiment is probably not going to stage a substantial lift until inflation is much lower and interest rates are firmly on hold," the Westpac economist said.
Businesses are also feeling the pinch.
A National Australian Bank report report found business conditions went sideways in June while forward orders fell for a second month, making confidence "soft and fragile".
Westpac senior economist Andrew Hanlan said the results confirmed a "material slowing of economic activity".
Despite this, Mr Evans expects two more rate rises in August and September, taking the official cash rate to 4.6 per cent, where it he forecasts it will remain until May next year.
Mr Halmarick agrees there will be an August rate hike. But he thinks the Reserve Bank of Australia will then be on hold before beginning to cut rates in the first three moths of 2024.