Things are looking up for retailers, after the Westpac-Melbourne Institute Consumer Sentiment index, rose 6.2 per cent in the month of February, resulting in a 20-month peak, however some organisations such as CreditWatch are still preaching doom and gloom.
The news comes as consumers are starting to loosen their wallets with retailers reporting good trading figures for January 2024.
The unlock key appears to be a cooling inflation, and the possibility of interest rate cuts with JB Hi Fi reporting that January sales are “looking good”.
While this is welcome news, given that levels were recently at lows last seen during the recession, consumer sentiment still sits at 86 — 100 which is considered ‘neutral’, so there is still a way to go until Australians are feeling positive about the economy.
On top on a rise in consumer sentiment stage 3 tax cuts coupled with recent tax cuts will see more money pushed into spending
Another issue bubbling away is the US economy. Figures released over night show that inflation eased again in January but came in above Wall Street’s expectations, clouding the Federal Reserve’s path to rate cuts.
The US Labor Department reported that consumer prices rose 3.1% in January from a year earlier.
What’s concerning is the possibility of a recession in the USA that could affect the Australian economy.
In the latest data, consumers are no longer expecting a mortgage rate rise in the 12 months, with the proportion of those predicting a leap declining to 42.4% from levels of 61.3% in December.
“This suggests that while consumers increasingly anticipate that the current tightening cycle is likely close to its peak, the majority still expect a non-negligible probability of a further rate hike in the next 12 months,” says Westpac senior economist, Matthew Hassan.
“Meanwhile, the proportion of consumers expecting the mortgage rates to fall in the next 12 months rose to 23.7 per cent from 12.1 per cent in January, indicating that a sizable portion of consumers is expecting the start of an easing cycle around the end of 2024 and early 2025.”
Despite the rise in consumer sentiment and improved trading results by retailers CredirWatch forecasts that challenging trading conditions will occur as business and consumer confidence remain subdued in 2024.
The question now is who is going to be the winner going forward organisations preaching doom and gloom or consumers taking a punt and spending at retailers.
The so called plunge in business activity that CreditWatch is spruiking is not showing up in the latest financial results of retailers.
Nick Scali shares rose more than 16 per cent when the furniture retailer reported growth in its order book and improved foot traffic, inviting broker upgrades.
Shares in Myer rallied 14 per cent after the department store giant flagged above-market sales.
Furniture Group Temple & Webster recently reported record half-year revenue of $254 million, up 23% year on year.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) increased 3% from H1 FY 2023 to $7.5 million. There shares rose on the news.
CreditWatch who appear to be out of touch with the retail market claim that difficult trading conditions will occur as business and consumer confidence remain subdued while input costs remain elevated.
They claim that the Business Watch Index showed business-to-business invoices down 19 per cent compared to January 2023.
The Australian Bureau of Statistics reported that retail sales plunged 2.7 per cent from November to December as cost-of-living pressures impacted consumers.
However all the latest retail reporting indicates that one of the biggest issues is margins as retails are forced to discount goods in an effort to get a sale.
CreditorWatch CEO, Patrick Coghlan said the deterioration in trading conditions indicates 2024 will be an extremely challenging year for Australian businesses.
“The retail trade numbers for December clearly showed that interest rate increases and high inflation are now exerting a huge amount of pressure on households, which translate to lower demand for goods and services,” he said.