• According to the Australian Bureau of Statistics (ABS), in seasonally adjusted terms, retail trade rose by 0.6 per cent in August to record highs of $34.9bn. Spending was up 19.2 per cent on the year. Turnover at department stores ($1.9 billion) and at cafes, restaurants and takeaway food services ($5.1 billion) both hit record highs.
  • The value of work done in engineering construction (includes structures like bridges, roads and dams) fell by 1.7 per cent in real (inflation-adjusted) terms in the June quarter 2022 to be down 2.6 per cent on the year. Infrastructure work yet to be done is just below 7-year highs nationally and at record highs in Tasmania.
  • The Federal Government has today announced a $32 billion underlying cash deficit (1.4 per cent of GDP) for financial year (2021/22), down $47.9 billion from the deficit previously forecast in the 2022/23 March Budget. The final 2021/22 Budget outcome also showed a $27.7 billion lift in tax receipts with government payments down by $20.1 billion.

What does it all mean?

  • Aussies continue to shop and spend, defying rising cost of living pressures and borrowing costs, with retail trade up by 0.6 per cent in August to a record high of $34.9 billion. Spending has increased for eight straight months to be up by a massive 19.2 per cent over the year to August.
  • Turnover at department stores (up 2.8 per cent to $1.9 billion) and at cafes, restaurants and takeaway food services (up 1.3 per cent to $5.1 billion) both hit record highs in August. Eating out may have increased on the back of rising international visitor numbers. And spending on household goods jumped 2.6 per cent, the biggest lift since March. Retail turnover hit record highs across all states and territories except Queensland and Western Australia.
  • In August, the Reserve Bank (RBA) hiked the cash rate by 50 basis points to 1.85 per cent, tightening financial conditions for households. And given the 3-month lag between when the RBA raises interest rates and the effect on household cash flows, August was likely the first month where borrowers began to feel the impact of rate hikes.
  • That said, Aussie consumer spending remained resilient in August, supported by the strong job market and excess savings built up during the pandemic.
  • But timelier Commonwealth Bank (CBA) credit and debit card spending data shows spending growth has moderated in September and may now be flat-lining.
  • We therefore think that retail spending will ease as the full impact of the RBA’s rapid rate hikes of 225 basis points eventually feeds through to household balance sheets. And the federal government’s fuel excise cut ends today, adding further pressure to consumer budgets.
  • A huge pipeline of public sector infrastructure work is underway across Australia, including new rail lines, roads, and investment in water, utilities, manufacturing, green and export infrastructure. Infrastructure work yet to be done is a smidgen below 7-year highs nationally and at record highs in Tasmania in June 2022.
  • Earlier this year, Deloitte Access Economics’ Investment Monitor report showed the value of publicly funded infrastructure projects underway could surpass $310 billion in 2022, surpassing the level of investment in the mining construction boom. That said, some projects in the planning pipeline could be delayed due to challenging building conditions, including labour and equipment shortages, soaring cost of materials, and heavy rain and flooding.
  • And while residential and commercial construction is under pressure, the latest high-frequency Australian Industry Group (AiGroup) and HIA Australian Performance of Construction Index showed that engineering construction activity surged by 13.3 points in August to 59.1 points, swinging back into expansion.
  • Aussie Federal Treasurer Jim Chalmers announced a massive improvement in Australia’s fiscal position today. The Treasurer revealed a Budget deficit of $32 billion in financial year 2021/22, down by a massive $47.9 billion compared to the deficit previously forecast in the 2022/23 Budget delivered on March 29, 2022.
  • The improvement in Australia’s Budget bottom line was largely attributable to a jump in revenue and lower payments. Tax receipts lifted by $27.7 billion compared with the previous March Budget forecast due to a strengthening labour market as more Aussies found work and paid tax. Company profits picked up after pandemic-related restrictions were eased due to strong demand, with tax receipts totalling $14.2 billion, filling the government’s coffers. And commodity prices soared due to the global food and energy crisis after Russia’s invasion of Ukraine, boosting Australia’s terms of trade and overall incomes.
  • Government payments were $20.1 billion lower than previously forecast in the March Budget. Government Covid-19 related spending fell, demand for some health services eased, and supply chain and capacity constraints delayed road and infrastructure projects.
  • In contrast to the big spending agenda of the UK government, Australian Treasurer Jim Chalmers said he would deliver a “bread and butter” Budget on October 25, 2022. Targeted government policy measures are expected to support Aussies, particularly on fixed incomes, during the current cost of living crisis. But the temporary fiscal revenue boost, soaring inflation and darkening global economic backdrop is likely to see the new Australian government exercise fiscal restraint. The Budget delivered next month will have important implications for monetary policy.

Originally published by CommSec