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Where consumers are really spending their money

Adam Zuchetti
Adam Zuchetti
24 July 2017 1 minute readShare
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It is commonly espoused that consumers are spending more on experiences than physical goods, but is this really fact or actually fiction?

Analysis by ANZ Research suggests that this belief is not as rock-solid as you may believe.

According to ANZ senior economist Joanne Masters, consumers are actually buying more goods than ever before and buying relatively fewer services. What is creating this pattern is how much consumers are spending on each purchase.

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“While growth in nominal consumption of discretionary goods has slowed faster than for discretionary services, this actually largely reflects weak retail price inflation,” she writes in an Economic Insight report.

“In volume terms, consumption of discretionary goods is growing faster than for discretionary services.”

 

In addition, Ms Masters suggests the more rapid growth in services prices may also reflect a shift in preferences among consumers towards higher quality services, combined with greater pricing power for the services sector.

“Goods [are] facing more international competition and more exposure to digital disruption than services,” she said.

Ms Masters suggests a more accurate means of analysing consumer spending behaviour is to separate spending on discretionary and essential items – regardless of whether they are a good or service.

“Based on the HFCE (household final consumption expenditure) data, the sharpest price increases are for non-discretionary items (such as electricity, education and food), but when looking at discretionary items the comparison between goods and services is stark,” she said.

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Prices for discretionary services are up on an annual basis – 3.1 per cent year-on-year for recreation and culture and 0.7 per cent year-on-year for hotels, cafés and restaurants in [the first quarter]. In contrast, prices for clothing and footwear have fallen by 1.1 per cent year-on-year, with an even sharper 2.2 per cent fall for furnishings and household equipment.”

Ms Masters concludes: “So consumers are actually buying relatively more goods but at a cheaper price, and relatively fewer services but paying more for them.”

Where consumers are really spending their money
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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