Concern about low consumption growth has been a key theme in the Australian economy this year, as consumers face the dual negative effects of low wage growth and high household debt.
The research team at Capital Economics expects real consumption growth to fall to 2% by the end of 2017, down from 3% at the start of last year.
According to economist Kate Hickie, motor vehicle sales and hotels, cafes & restaurants are the two industries most at risk if the decline in consumption continues.
Food purchases, household furnishings and health spending round out the top 5 industries most at risk.
That said, amid dwindling consumption some sectors will perform better than others.
Hickie has run some numbers on the good and the bad — which industries are well placed to whether the storm, and which are most vulnerable as Aussie consumers get caught in the consumption crunch.
To do that, she assessed which industries faced the most structural headwinds since 1980, and also which are most susceptible to a cyclical downturn.
To clarify the distinction between the two, consider cigarettes & tobacco. The tobacco industry has faced severe structural headwinds since the early 1990’s as more people quit smoking.
However, demand for tobacco products is less affected by an economic downturn.
That can be contrasted against motor vehicle sales, which have seen steadier demand growth but are more exposed to negative swings in the economic cycle.
Hickie combined both structural and cyclical factors to arrive at a list of how various industries will fare if consumption growth slows:
The structural rank is based on percentage consumption growth for each industry since 1980. While different industries would have fluctuations within that time, the results give a broad guide as to how much structural resistance each industry has faced.
The cyclical factors are calculated by applying a beta ranking to each sector. Those with a beta ranking under 1 are least susceptible to changes in the economic cycle.
“In contrast, spending in those categories with a beta greater than 1 are the most cyclical and so benefit during an acceleration in overall spending growth, but suffer most during a slowdown,” Hickie said.
The results showed that rent and other dwelling services have historically been the most resistant to economic changes, recording a beta of 0.0. Motor vehicle purchases had the highest beta with a reading of 3.7.
Hickie then compared the analysis to actual results over the past year, as consumption growth has fallen towards 2%.
The research showed that while spending on clothing, recreation and food has fallen, motor vehicle sales have remained resilient.
Looking ahead, spending on vehicles is unlikely to continue to hold up well, Hickie said.
“More recently, lending rates have started to rise and that will probably lead to weaker growth in vehicle sales in the coming quarters,” she said.
That’s consistent with research from Morgan Stanley in June, which said that lending for new motor vehicles is poised to decline as regulators enforce stricter lending standards.
Hickie said that food spending may benefit as people cut down on eating out, and clothing sales may get a boost following Q1 after an unusually hot autumn season weighed on seasonal spending patterns in clothing.
All told though, if domestic consumption growth moves back towards 2% this year, “we doubt many sectors will escape at least some slowdown,” she said.
“Spending on things such as rent and communication services are likely to fare better. But spending on vehicles, hotels, cafes and on furniture will weaken in the coming quarters.”