Copy link Copied Copy link Copied Subscribe to gift this article Gift 5 articles to anyone you choose each month when you subscribe. Already a subscriber? Login A two-speed economy has exposed a gulf between younger cash-strapped consumers and older wealthier Australians, small and large businesses, and mining-rich Western Australia and eastern states. Persistent inflation, elevated interest rates and housing pressures in the post-pandemic economy have widened the financial gap.
Wealthier consumers are spending up on travel, coffee machines and jewellery, according to chief executives and profit results posted this month by major companies. Meanwhile, people feeling the pinch are resorting to eating basic meals at home and dining out less, while also cutting back on non-essential items such as fashion and footwear. National Australia Bank chief executive Andrew Irvine said people are proving to be resilient to the current economic challenges, but “the averages don’t always tell the story”.
“My view is that in Australia there is a two-speed economy operating at present. “Western Australia, Queensland and the Northern Territory are resource-driven economies. They’re growing significantly more than the national average.
“Southeast Australia, particularly Victoria, is finding it more challenging. Those economies are much more correlated to domestic demand and discretionary spending.” He said that people “are getting by, and they’re budgeting hard”.
“There is a lot of focus on homeowners with a mortgage and the pressure they feel from higher interest rates, and that’s appropriate. “But we need to talk more about renters who have been particularly hard hit by higher rents and higher living costs too.” Luxury accessories retailer Cartier opened its first Perth store on Monday, joining other expensive brands including Louis Vuitton, Gucci, Tiffany, Chanel and Dior expanding from the eastern states to the west.
Perth Lord Mayor Basil Zempilas said: “We certainly know from conversations that we have, that they are doing very, very well in Perth, and that’s why they’ve got more in that luxury family coming to Perth.” Cartier store opening in Perth. Instagram “Despite the cost-of-living crisis that we know we’re in the middle of, as we’ve often said here in the west, there’s almost two tiers to it here.
There are some that are still able to go and spend money on these luxury items and luxury goods, and are doing so on a weekly basis.” The two-speed economy was often mentioned during the Rudd-Gillard Labor government when a mining investment boom forced the Reserve Bank of Australia to increase the cash rate to 7.25 per cent and Western Australia poached workers from the east.
But the new divide is now not only geographical but generational. Customer spending data from the Commonwealth Bank of Australia confirm that older households, who are more likely to own their home outright, have fared much better than their younger counterparts over the past couple of years. Spending on discretionary goods and services, such as holiday travel and entertainment, among CBA customers aged 65 and over increased by 4.
8 per cent in the year to June. In contrast, spending on nonessential items declined among those customers aged under 34. Older households have also saved more thanks to high interest rates.
CBA customers aged 65 and over recorded a 7 per cent annual increase in account balances, while customers aged 54 and under had to dip into their savings to meet higher rent and mortgage repayments. While households have cut back on discretionary experiences such as eating out, essential spending on areas like utilities and supermarket food has held up strongly across all age groups, growing at about 4 per cent per year. Coles chief executive Leah Weckert said on Tuesday more shoppers were shifting from dining at restaurants to eating at home, including for “meat-free Mondays” and consuming the cheaper supermarket-owned brands.
“We’re seeing really good growth in volume, and that’s really being driven by a lot of Australians choosing to eat in and eating at home, and they’re looking to replicate some of the experiences that they would have had when they were eating out by buying products that might be a little more premium or a little more special when they come in to shop with us,” she said. Steve Donohue, chief executive of alcoholic drinks retailer and hotels operator Endeavour Group, said there are some differences generationally in terms of the way consumers are being impacted by cost-of-living pressures. “Consumers are drinking less, but drinking better.
“I think the older cohorts, the boomers, tend to be quite demanding when it comes to price, even if they’ve got good resources themselves, they’ve seen the cycles more than once,” he said. “I think what we’re seeing is a shifting mindset in some younger consumers that are just coming to terms with this changing cycle. “So that’s forcing them to change their habits, from that devotion to convenience to one which is a little bit more prudent when it comes to how much things cost.
” Underlining the divergence, Westfield-owner Scentre’s shopping malls experienced above-average sales growth – 5.1 per cent – for jewellery in the first six months of this year. But belt-tightening by shoppers caused declines in sales for footwear, fashion and department stores.
Mat Baxter, chief executive of marketing tech platform Mutinex, said: “There’s no queue outside Lowes and Kmart. There is a queue outside Louis Vuitton and Gucci. Go in and buy luggage at Louis Vuitton, it’s $10,000.
“Louis Vuitton can put their logo on a key ring that costs 4c to produce and costs $400.” Kitchen appliance company Breville last week reported strong home coffee machine sales around the world , posting record annual revenue of $1.53 billion.
Travel companies exposed to Baby Boomers are favoured by share market analysts at investment bank Jarden, which is bullish on Flight Centre and Webjet. Passengers at Sydney Airport’s international terminal. “Baby Boomers hold a disproportionate share of wealth and are now retiring and spending time travelling and the capital base accumulated,” Jarden head of research Ben Gilbert said.
Sydney Airport’s annual earnings more than doubled to $1.22 billion in 2023, with total passenger numbers rebounding to 38.6 million last year from 29.
1 million a year earlier, albeit remaining below 2019’s record of 44.4 million passengers. Globally, Mastercard spending data shows cruise passenger transactions were 16 per cent above 2019 levels in the first quarter of this year.
Australian Travel Industry Association chief executive Dean Long said activity was strongest among people around retirement age who owned their own home. “The older demographic have more disposable income and higher interest rates are a positive for them. “They’re still spending and that’s why the premium cabins are selling extremely well.
” Long said demand from more value-conscious, younger travellers and families was softening – but they are also becoming more focused on getting bang for their buck. “They’re looking for packaged holidays. “They’re making sure that they’re getting all-inclusive packages and the exchange rate is now starting to become a bit more of a factor, which is why we’re seeing Japan and Korea really take off.
“Economy is definitely where there are some gaps, and we were seeing some very, very cheap airfares at the moment across all the carriers both internationally and domestically.” Melissa Elf, corporate global chief operating officer at Flight Centre, which counts wealthier, older Australians as its core clients, said, “Despite economic challenges and geopolitical tensions, Australians are still travelling, proving that business travel is anything but a discretionary spend.” Qantas is expected to report strong growth at both ends of the value spectrum when it reports on Thursday.
Bendigo and Adelaide Bank chief executive Marnie Baker said there was a “divide” between those in and out of the homeownership market. “It depends on the geographic locations, the age brackets, and it depends on the type of employment ..
. We are seeing some differences even there in disposable income,” she said. “That pressure is not being felt equally across all Australians – it is being felt harder by some than others.
“I think about younger people who first got into the housing market or are not even in the housing market and are renting ...
That’s where it is really tough at the moment. “We are seeing Victoria and Tasmania aren’t as strong as WA, SA and Queensland from a house price perspective.” A Westpac report released on Monday shows that the divide has widened between larger commercial businesses and small and medium businesses (SMEs).
“More SMEs are seeing their cash flow become constrained,” Westpac economist Pat Bustamante said. “Commercial businesses are borrowing to invest in capacity – they see opportunities now and are backing themselves to make the most of these opportunities.“ Industries catering to the growing population have outperformed, including private sector providers of health and education.
The number of businesses operating in the healthcare and social assistance sector jumped by 7.7 per cent in 2023-24, the Australian Bureau of Statistics said on Tuesday, well above the 2.8 per cent growth in firms nationally.
In contrast, the retail and wholesale trade sectors, which have been at the coalface of the slowdown in discretionary consumer spending, recorded no net growth in registered businesses last financial year. “There is also a divergence in geography with the mining states, including WA and Queensland, outperforming,” Bustamante said. “Income growth in WA picked up in the June quarter and was flat in Queensland.
This was in stark contrast to NSW and Vic, where income declined in the quarter.” Treasurer Jim Chalmers said in a speech on Monday night that economic growth was “flat”, discretionary spending has “disappeared”, and household saving rates have “fallen”. “Retail is slow, and unemployment has gone from the mid-3s to 4.
2 per cent in a year,” Chalmers said. “We are fighting inflation and getting the budget in better nick, but without smashing an economy which is already very weak.” West Australians are bucking the national economic slowdown, enjoying a stronger labour market, higher incomes and spending more.
The city of Perth is attracting luxury retailers. Western Australia is the only major state where the unemployment rate is below 4 per cent. The 3.
7 per cent jobless rate is below the national average of 4.2, despite the recent closure of West Australian nickel and lithium mines following a slump in the prices of those commodities. Household spending in WA was up 6.
3 per cent in the year to July, the strongest of any state or territory, according to Commonwealth Bank card spending data. Scentre stores posted the strongest sales growth in Western Australia (4.9 per cent) and the Australian Capital Territory (4.
6 per cent) over the 12 months to June 30. Pay packets in WA are also higher. The average weekly ordinary time pay in WA was $2094, eclipsed only by the public-servant-dominated Australian Capital Territory at $2126, the latest data from the Australian Bureau of Statistics data show.
NSW ($1935) was the third highest, followed by Queensland ($1901), Victoria ($1882), Northern Territory ($1845), South Australia ($1776), and Tasmania ($1710). The balance sheets of large companies are also generally better than small businesses to ride out weaker discretionary consumer spending and cost pressures. While 88 per cent of large businesses are “very satisfied” or “somewhat satisfied” with their current level of working capital, just over half of small businesses – 61 per cent – share this sentiment, according to a survey by CreditorWatch.
“On an industry level, wholesaling, transportation, airlines, and travel services are the most dissatisfied with their current levels of working capital,” CreditorWatch chief executive Patrick Coghlan said. “These findings underscore the diverse financial pressures across the business landscape and the importance of tailored strategies to navigate these challenges.” But there may be light at the end of the tunnel.
Westpac’s Bustamante said the “worst looks to be behind us”. “Cost of living support, tax cuts, moderating inflation and, eventually, lower interest rates will support consumer disposable income and spending,” he said. “This will have positive flow-on effects for businesses of all sizes.
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