Consumer spending boom still has further to run

There is likely to be a ‘boom of historic proportions’ in retail spending with no sign of the consumer spending ending soon, according to Yarra Capital Management.

There had already been a significant boom in consumer spending as people accumulated excess household savings thanks to Government subsidies and the lack of travel spending and this was expected to continue yet for several months.

Tim Toohey, head of macro and strategy, said: “Recovery has occurred with excess household savings that we estimate to be about $171 billion accumulated since COVID-19 commenced. To put this in context, this is equivalent to 12% of household disposable income.

“The current resurgence in consumer spending will not just peter out in the coming months, the buffers that the households have accumulated during the pandemic and unexpected wealth is due to remarkably strong labour market and sharply recovered dividend income receipts.”

He forecast consumption growth would average about 7% in 2021 and then 5% in 2022 which would be a “boom of historic proportions”.

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The spending boom had already been benefiting retail stocks such as Myer, JB Hi-Fi, Harvey Norman and Wesfarmers over the past year.

All these stocks had seen double-digit returns over the year to 7 July, 2021, with the best returns coming from department store Myer which returned 114% versus returns of 25% by the ASX 200.