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Economics & Markets

Rebound in consumption could create winners and losers, but bodes well for growth

By Diana Mousina
Economist - Investment Strategy & Dynamic Markets Sydney, Australia

Consumer sentiment across most of Australia rebounded again in September in the wake of falls through August following the ratcheting up of lockdowns in Victoria1,2. This is an encouraging sign for consumption going forward, and also for GDP, given that a crash in consumption was largely responsible for our record economic contraction in the first quarter of 20203.

Underpinning this buoyant mood is the fact that household incomes in Australia have actually risen through the pandemic, with the boost provided by government support programs actually outpacing lost income through foregone wages.

This is a story playing out overseas as well – for example, US consumer disposable incomes are up by 8.4% over the year to July (after reaching a peak of +16.5% year-on-year in April) compared to pre-COVID growth of around 3% per annum in recent years.

Whilst higher incomes have helped support consumer sentiment and consumption, a large portion of the extra money has been banked, with the households savings rate in the US rising to 17.8% from around 7% pre-COVID. In Australia, the savings rate has more than tripled to 19.8% during the pandemic, its highest level since 1974.

These savings will provide capacity for consumers to smooth their consumption as the unfolding effects of the pandemic on employment and the removal of government support continue to play out over the next twelve months.

Effects of lower consumption falling unevenly

Some of the sectors hardest hit by first-quarter falls in consumption are yet to fully recover and may not bounce back at all in the absence of a widely available and trusted vaccine. Considering that travel, recreation and eating out were worth 16% of consumer spending in Australia pre-COVID, it’s remarkable that overall spending has been so resilient.

It has been well documented that online shopping, which hit a peak of 11% of total retail spend in Australia during the first round of lockdowns, has largely taken up the slack, but within that dynamic a number of fascinating patterns have emerged.

Here are three categories that is helping drive consumption through the pandemic at home and abroad:

Furnishings and home equipment

Many of us are spending much more time at home, and apparently are willing to splash out to make them more comfortable. Home office furnishings are obviously a large part of this shift but not the whole story. We can probably expect to see this demand diminish to some extent over the coming months, given that much of this increase will have been spending on durables that has been brought forward from future spend.

Online health and fitness services

Exercise equipment has been a strong part of that home improvement trend, but the other side of that story is the strong growth in subscription services that support the home gym. On a large scale, connected and competitive sessions with major indoor bicycle services are booming4, and even smaller businesses, such as personal trainers, have found themselves conducting an increasing amount of their business online.

The popularity of telehealth services in Australia also increased dramatically through the lockdown period, thanks in part to the extension of Medicare benefits. The Royal Australian College of General Practitioners estimates that about 40% of their members’ consults could be conducted using telehealth services, and it is likely that some portion of this increased demand will persist into the longer term5.

Luxury goods

Designer shoes and handbags don’t have quite the cachet when there’s nowhere to take them, but luxury brands haven’t quite taken the hit we might have expected. For many consumers confined to their houses, spending simply shifted to “comfort” items from the same brand, such as sleepwear, wellness products and other “nesting supplies”6. Once freed from quarantine, many appear to have headed straight back to the boutiques7 (and car dealerships, with luxury sales bucking the sales slump in the automotive industry8).

The phenomenon of luxury goods sales rising during times of financial stress has been documented before, immortalised in the “lipstick index” touted by Leonard Lauder (son of Estee Lauder) in the wake of the post September 11 economic downturn. However, a number of commentators have noted that widespread uptake of facemasks have rendered the effect obsolete (if it ever existed)10, with nail-polish11 and eye shadow12 mooted as potential alternatives.


Australian retailers have been fortunate that the Federal Government’s fiscal response to the pandemic has been directed to such a large extent to consumers; in other countries, such as China, where stimulus was directed primarily to the industrial sector, consumption has not been so resilient.

That said, challenges still await as the full effects of the recession make their way through to household incomes and while the tourism, recreation and personal services industries await some kind of resolution to the pandemic.

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While every care has been taken in the preparation of these articles, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in them including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. Performance goals are merely goals. There is no guarantee that the strategy will achieve that level of performance. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. These articles have been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. They should not be construed as investment advice or investment recommendations. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.

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