Capital Economics: Consumption Momentum Stalls with Steady Retail Sales

Investing.com -- Capital Economics noted in a report published on Friday that consumer spending shows signs of waning momentum. Retail sales volumes remained unchanged in October, ending a series of consecutive monthly increases. The report also provided a preliminary estimate indicating that retail sales values remained unchanged in November, suggesting that this could be the start of a new trend rather than an isolated event.

Despite this, sales increased in five out of nine sub-sectors in October, with strong sales in high-cost items. The October data showed a 0.6% month-on-month increase in retail sales values, but this increase was entirely attributed to price hikes as sales volumes did not change. Motor vehicle sales outperformed other categories with a monthly growth of 2.0%. Furniture retailers and electronics and appliance stores reported sales increases of 2.3% and 4.9%, respectively.

The data indicates that low interest rates may have boosted demand for these high-priced goods. On the downside, food and beverage sales saw a significant monthly decline of 0.7%, while gasoline sales volumes decreased by 4.7%. Overall, core retail sales showed a slight month-on-month increase of 0.1%.

Preliminary data for November is less encouraging, showing that retail sales values have remained unchanged compared to the previous month. Given the overall rise in goods prices in November, it is thought that sales volumes may have actually declined.

However, Capital Economics indicated that the Goods and Services Tax (GST) holiday and the increase in real disposable income could be factors supporting consumer spending until early 2025, maintaining an optimistic outlook on the near-term prospects for household consumption.