Goldman Sachs says consumer spending remains patchy through the first quarter of the year, despite a recovery in housing, tax cuts and three cash rate cuts.
Pointing to the varied trading updates from retailers through the first three months of the new fiscal year, Australian equity strategist Matthew Ross said the evidence of a consumer recovery remained mixed.
“The market has priced in an improving consumer spending outlook since May’s surprise federal election result,” he said.
“While consumer-related stocks have outperformed through this period, the macro data remains patchy. Consumer sentiment fell in October to the lowest level since mid 2015, the unemployment rate has started to trend higher and aggregate retail sales trends up to August have shown little acceleration.”
The outlook is further consolidated by today’s retail sales data for September, which were below expectation.
Since June, consumer cyclicals have outperformed the S&P/ASX 200 by 10 per cent but so far, first quarter trading updates have shown that outperformance may be on shaky ground.
“The evidence of a consumer recovery remains very mixed; roughly half these firms have talked to an improving sales environment, while the remaining 50 per cent continue to flag a challenging consumer environment,” Mr Ross said.
He added he had been disappointed by the consumer response to a number of tailwinds including improving house prices and rate cuts.
“This is particularly so in light of what was a reasonably meaningful tax cut, the majority of which was refunded to households over recent months,” he said.
“Given the recent outperformance of consumer names, we see increased risk that the market has got too optimistic about the prospects of a consumer recovery.”