Our spending is slowing right down. Here's what it means

In a report that highlights the significant impact surging living costs and high interest rates are having on the budgets of millions, Australian Bureau of Statics figures show that discretionary outlays fell by 2 per cent in the year to October, the weakest reading since October 2020.

Overall spending increased at an annual rate of 2.7 per cent, almost half the rate of just two months earlier, and would have been much weaker but for a 7 per cent bump in spending on essentials like food, fuel and healthcare, driven by rising prices and strong population growth.

Spending in the ACT was up 5.5 per cent, the second biggest increase in the country and not far behind Wester Australia, where it jumped 6.9 per cent.

Canberra shoppers lashed out on alcohol and tobacco, with the value of such purchases up more than 17 per cent, while spending on health (up 15 per cent) and transport (12.8 per cent) also surged.

But, as in the rest of the nation, Canberrans cut back on buying furnishings and appliances (down 12.8 per cent) and attending events and shows (down 5.3 per cent).

The result precedes the Black Friday sales period, when heavy discounting by retailers helped encourage shoppers to splash out, according to initial purchasing data.

It suggests many held back their consumption during October and early November in order to take advantage of Black Friday specials and several economists tip that, as was the case last year, a sales-driven spending splurge at the end of November will be followed by weak demand in the lead-up to Christmas.

Supporting this view, the ANZ-Roy Morgan consumer confidence index fell back last week to 76.4 points - far below its long term average of almost 111 points.

As part of this, the "Black Friday bounce in the 'time to buy a household item' subindex" [has] faded", ANZ senior economist Adelaide Timbrell said.

Ms Timbrell said the mood among those paying off a mortgage was particularly gloomy and overall consumer confidence was unlikely to recover in a meaningful way until there was a "serious turnaround in inflation".

Deloitte Access Economics partner David Rumbens said it had been a tough year for retailers, especially those selling anything but essentials.

"Consumers are continuing to avoid discretionary spending where possible, which has led to a substantial gap between food and non-food retail sales growth," Mr Rumbens said. Food sales in the year to September grew 0.6 per cent while purchases for all other items fell 4.2 per cent - including a 6.1 per cent drop per person.

"None of these statistics indicate anything other than significant stress on the consumer. And even food spending is starting to give way, as more consumers cut back on eating out and economise more with their grocery shops," he said.

But he predicts the outlook for retailers is set to improve next year as inflation continues to moderate and the spectre of ever-higher interest rates fades and workers being to experience real wage gains.

The weak spending data comes amid other evidence that growth is weakening.

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The nation's trade performance dragged on the economy in the September quarter as export volumes shrank while imports climbed. Westpac senior economist Andrew Hanlan estimates the combined effect will be to subtract 0.65 of a percentage point from output over the three months.

But this soft result is likely to be offset by the boost to activity from strong population growth and big federal, state and territory spending on infrastructure, housing and other construction.

Overall, Mr Hanlan predicts the economy expanded by just 0.5 per cent in the September quarter, dragging the annual growth rate down to 1.9 per cent.

Treasurer Jim Chalmers said he expected the national accounts figures due out on Wednesday to show that while some parts of the economy are doing well, others are being "buffeted by higher interest rates and persistent inflation and global economic uncertainty".

The government has forecast for the economy to slow during 2024.