April Brings the Rain and the Reining in of Spending

April data is out for Spendmapp. I’m going to take a look at what happened on the Gold Coast during the Commonwealth Games. But before then, I am looking at what is happening across all of our Spendmapp client data.

Across Australia April is typically one of the quietest months for household and business spending. It is usually the turning point after the post-Christmas trough. But this April shows something new. Apart from one or two places, spending is down compared to last year. The typical steady recovery has not appeared (Figure 1).

Our Spendmapp clients extend from every state and includes capital cities, regional cities, metropolitan councils and rural and remote towns. With few exceptions, spending is substantially lower this April than in April 2017. This is despite February and March being reasonably good (up 3% and 4.4% over the same period last year respectively).

Comparing these months, total spending is down by 3.9% overall. The one or two exceptions include the Victoria regional city of Ballarat (up by 0.6%) and the City of Perth (up by 4.4%). Take those out and we see a total (and quite surprising) decline of 13.1%. This runs counter to what we’ve seen with Spendmapp data so far. It does, though align with what we are reading in the media about GDP: that in the quarter to March, real GDP jumped by 1%, the biggest increase since 2011; but, also that household consumption barely grew (Spendmapp data is dominated by household transactions).

Figure 1: Total Spend Trajectory by Month

Figure 1: Total Spend Trajectory by Month

Figure 1 shows the Christmas spike typical from Spendmapp data, as well as the post-Christmas trough. But the steady recovery we saw in previous years is not yet apparent in 2018. The chart shows the summed spend for all Spendmapp clients. The data has been standardised to protect the confidentiality of subscribers.

The wealth effect?

Is this a reflection of the wealth effect? April was probably the first month in which there was nation-wide concern about a deflating housing market. There is a view that there is a positive relationship between spending and people’s confidence about the security of their own wealth. In fact, this idea is considered most robust when it comes to the links between house prices, the perception of wealth security and the willingness to spend.

As the personal sense of wealth is so closely tied to housing in Australia, an uncertain housing market will mean uncertainty in peoples’ minds. And that means, reining in the spending. It’s probably not helped by the fact that wages have been flat for years and we are all now much more aware of it. As far as willingness to spend goes, it’s one thing to have a salary that is going backwards relative to the cost of living. But it’s another thing entirely to actually pay attention to this fact.

It appears from the Spendmapp data that we could be seeing this growing uncertainty. If, by July, we haven’t seen the typical recovery we’ve been seeing in the data in the past, then we’ll know something is up.

Kevin Johnson