Nestled inside last week’s many pages of data about the health of the economy was an interesting development.
We’re eating out less.
Despite the hordes of Deliveroo riders on the road and busy inner city eateries, growth in “café, restaurant and takeaway food” sales slowed to just 0.6 per cent in July, a five-year low following a gradual decline in recent months, according to Morgan Stanley’s analysis of the ABS’s monthly retail sales numbers.
The “anaemic” growth fuelled predictions that rising cost of living pressures were prompting consumers to cut back on eating out and stay in. Even online takeaway food growth – which has been growing at a booming 20-odd per cent in the past six months – was found to have slowed to 12 per cent in July.
Westpac’s economics team also noted consumers’ caution, Matthew Hassan saying the second quarter national accounts, or GDP, showed weaker than expected spending.
However, Hassan says the signs around incomes were more worrying, noting that pay for the average non-farm employee fell 0.3 per cent, the sixth quarterly contraction in a row. Over the year, average earnings declined 0.3 over, the second weakest since records back in 1971, only pipped by the slump during the global financial crisis.
In turn, the household savings ratio slid to 4.6 per cent – compared to around 10 per cent a decade ago – as people put less cash aside.
Recent trends suggest the savings rate could have further to fall, unless people continue to cut back on spending on the likes of eating at restaurants and put more cash away for a rainy day. This may not be the end of the world – the savings ratio was around zero, or even negative, for much of the 2000s prior to the GFC. Yet unlike then when the China-inspired mining investment boom was just warming up, lacklustre household spending now would hit the economy at the wrong time as the home building boom cools and energy prices rise.
So far, the pressures are yet to hit the headline numbers. The national accounts showed the Australian economy grew by 0.8 per cent in the June quarter, up from 0.3 per cent in the prior three months that were impacted by bad weather. It left annual growth steady at 1.8 per cent, about in line with the Reserve Bank’s forecasts.
Although below what many people are used to, that level of overall economic growth is far from dire and the September quarter may even show a further improvement, according to some economists.
Yet the soft July retail figures suggest the bounce in some household spending in the quarterly national accounts to June 30 was just that – a bounce that was short lived. Further evidence emerged last month when listed companies reported profit results with cautious outlooks, seen by Domino’s flagging that same store sales in Australia and New Zealand this half year would fall short of recent double digit growth.
Western Australia’s budget last week, the first from the new Labor McGowan government, also highlighted challenges in parts of the nation, the budget deficit deteriorating to $2.3 billion in 2017-18 as lower GST receipts and softer mining activity take a toll.
While the RBA left the official cash rate on hold last week, governor Philip Lowe has repeatedly called out concerns about record low wages growth and high household debt levels. Westpac’s economists still expect the RBA to keep the cash rate at 1.5 per cent through next year, unable to follow other countries in hiking rates due to subdued wages and lacklustre consumer spending ahead of the looming slowdown in home building.
A total of 80 “accommodation and food services” companies ended up in the hands of external administrators in July, building on the 227 during the June quarter and 168 in the three months to March, according to the corporate regulator’s data.
However, the accommodation and food services sector also typically has a high number of formations, having the highest “entry rate” in the year to June 2016, ABS data shows. Anecdotally, that’s not surprising given the speed at which cafes and restaurants appear to pop up and, unfortunately, vanish.
Like many industries, digital “disruption” is bring opportunities and challenges for restaurants and cafes. Yet the broader health of the economy remains as important as ever, making the next few months of economic data – and dining activity -- critical for all.
Some positive signs emerged today via The Westpac-Melbourne Institute small and medium sized enterprise index, which showed that confidence rose by 3.2 per cent in the third quarter and shifted above the 100 “neutral” mark for the first time this year.
Despite reporting weak current conditions due to rising costs, particularly energy prices, SMEs are positive on future conditions. As usual, conditions were mixed across the nation, sentiment increasing in Victoria and New South Wales while falling in Queensland, Western Australia and South Australia. Industries also varied. However, the “wholesale and retail trade”, sector expected business conditions to improve in coming months.
That would no doubt be welcomed by all.
By Michael Bennet
Editor, Westpac Wire