Australian household spending surged by 1.3% in October, its fastest rise since the start of 2024 and well above the expected increase of 0.6%. Sales and major events saw discretionary spending lift sharply (1.6%), making a strong start to the quarter after yesterday's National Accounts reported a pullback in Q3 (see here). Markets do not expect any further RBA rate cuts and have begun pricing in a rate hike late next year.
Household spending lifted by 1.3% in October ($78.4bn), accelerating from a 0.3% rise in September. Annual growth firmed to a 25-month high of 5.6% from 5.1% previously. The overall rise in spending was broadly based. The main dynamic was discretionary spending surging to a 1.6% rise for the month, its fastest gain since January 2024. Meanwhile, non-discretionary spending rose by 0.8%, matching its gain from September. The composition of growth remained driven by goods, which rose by its most (1.7%) since September 2023, outpacing services (0.8%).
As the chart (below) shows, all categories contributed to pushing up spending in October. Sales events supported growth in clothing and footwear (3.5%) and furnishings and household equipment (3%). Major sporting events and concerts drove the recreation and culture category (1%), leading to associated gains at hotels, cafes and restaurants (2.2%). Alcoholic beverages and tobacco saw its first rise in 11 months (1.8%). Smaller gains were posted in the health (0.4%) and transport categories (0.3%).
Household consumption growth slowed in the September quarter, but that looks to be temporary given the strength of the October report. As highlighted in my review of the National Accounts, a rising saving rate and solid real income growth bode well for the spending outlook. While further RBA rate cuts look to be off the table, the full effects of the 75bps of cuts delivered this year are still cycling through the economy.
