Omicron caution triggers sharper drop-off in early year spending

ANZ (ASX: ANZ) is reporting a sharper-than-usual drop in spending in early 2022 due to caution around the Omicron variant of COVID-19, especially in NSW where spending in the week to 2 January was 25 per cent lower year-on-year.

However, ANZ Research senior economist Adelaide Timbrell emphasises the recent drop is nowhere near lockdown levels.

"I don’t think it’s cause for too much concern for the 2022 outlook of spending yet. The Omicron caution is something that’s going to develop and change quickly," Timbrell tells Business News Australia.

"The good signs for spending in 2022 are that people are shifting their spending online rather than just not spending altogether, particularly for discretionary categories like non-food retailing and dining.

"We’ve also seen that in the 2021 retail data that Victorians actually had a much smaller impact from Delta lockdowns compared to people in NSW and the ACT, and I think that speaks to the fact that when people - whether it's businesses or consumers - have more experience with lockdowns, it tends to mean that they have a smaller spending impact each time."

The author of ANZ's spending data wrap-up adds Victoria's spending was down 19 per cent and Queensland's was down 17 per cent, although the rest of the country was not hit as badly.

"But if this caution does continue and we do see people stay at home more due to Omicron or not spend as much on hospitality and other retailing, that may be something that has an impact. It is just too early to tell right now," Timbrell explains.

"There's a big difference between staying home for New Year's and an economic crash, and I think we've just got to really remember that when we look at this data."

The economist notes a rise of Black Friday spending has been at the expense of Boxing Day sales, which have been progressively declining over the last four years, down 6 per cent in 2021 and 10 per cent lower than in 2019.

"We expect Boxing Day sales to probably keep falling or not grow very much in the future as well," she says.

"We're not worried about seeing Boxing Day getting weaker. It's not because people are spending less money or more worried about their cash flow. It's just because a lot of people already made their purchases in the lead-up to Christmas."

Spending was down across most retail categories in the week to Christmas Eve, except for spikes for jewellery (+43 per cent) and furniture (+22 per cent), as well as increases for specialist sport stores, discount stores, pet stores and nail products.

"When it comes to furniture we’ve seen a really strong increase in end-of-year spending in that category for a few years, but particularly in the last two years, and that really comes down to the housing market.

"We’ve seen a little bit more buying and selling since COVID, a lot more increases in housing prices. And that's something that's given homeowners that confidence or a trigger to purchase more furniture.

"Low unemployment expectations help with that too – they are a bigger ticket item. Jewellery in a sense is the same, they're a lot more on the expensive side.

"When we know people are willing to get out and about but aren't necessarily spending on bigger ticket items, we tend to see clothing and dining do better. And then when people are really confident about their wealth, we tend to see things like furniture, jewellery, electronics and department stores do better."

Timbrell highlights these trends are more pronounced amongst the "winners" of the pandemic such as those with higher incomes, stable careers or home owners - generally in an older demographic - whereas for many young people or workers in hard-hit industries, there has been a compounding of bad luck.

"It is probably likely that homeowners are taking up a larger share of spending than they did before COVID, because they’ve increased their savings, they’ve got increased confidence, whereas renters are likely to have the same or lower confidence, and then are also more likely to have had income disruption," she adds.