Roy Morgan has given its retail sales outlook for 2024 and predicted slowing growth, but with green shoots appearing.

Despite the intense cost of living pressures on households over 2023 the much-feared consumer spending ‘cliff’ did not come to pass.

Retail sales were steadied by record population growth, continued strong employment and the dwindling remains of record household savings.

With 2024 set to be another uncertain year, Roy Morgan’s Roy Morgan’s Retail & Consumer Trends Expert Laura Demasi has stepped through some of the factors that will shape how the year might unfold.

She says population growth continues to be the key factor holding up retail. Australia’s population grew by 2.4% in the 12 months to June 2023, adding 518,100 people to our population from overseas migration. This record growth did much of the heavy lifting in helping the country avoid recession. While the intake of migrants is set to scale down in 2024, she said this boost to the population will continue to help steady retail demand.

Record low ANZ-Roy Morgan Consumer Confidence will likely persist until consumers feel certainty that the cycle of rate rises has ended but some green shoots are appearing.

“As we ring in 2024 the Index is starting to climb back up over 80, following the announcement of lower-than-expected ABS official inflation for November and again in January, now at 3.4%, inspiring hope of rate cuts coming sooner rather than later,” she said.

However 31% of mortgage holders – or 1.49 million Australians – are ‘at risk’ of mortgage stress. The majority of mortgages on fixed terms rolled out in 2023 without triggering some of the worst-case scenarios around defaults and fire sales, but ‘mortgage stress’ is still hovering at concerning levels seen only a handful of times since the GFC.

“The latest Roy Morgan Mortgage Stress indicator shows that 1,609,000 mortgage holders were ‘at risk’ of ‘mortgage stress’ in the three months to January 2024, following the November increase lifting rates to 4.35%,” Demasi said.

“This represents a new record high total for mortgage holders considered ‘at risk’ of mortgage stress, beating the previous record highs above 1.56 million in August and September 2023. The number of Australians ‘at risk’ of mortgage stress has increased by 802,000 since May 2022, when the RBA began a cycle of interest rate increases.

“Meanwhile, the number of mortgage holders considered ‘extremely at risk’ of mortgage stress is now numbered at 994,000 (19.8% of mortgage holders), which is significantly above the long-term average over the last 10 years of 14.3%.”

Interest rate rises aren’t affecting everyone, there are still cohorts with spending power. Around 34% of Australians are mortgage holders, with the remaining two thirds split between those who rent and those who own their homes outright. The latter group of home owners represent around 34% of the population – a significant cohort whose spending power is unaffected.

In addition, many young adults are also free from the burden of market rents and mortgages eating into their discretionary spending – with just over half of young men (54 per cent) and 47 per cent of young women aged 18 to 29 years old still living under the same roof as their parents.

Shifting trust in retail

Thanks to much goodwill built up over the pandemic, retail is the most trusted sector led by Woolworths and Coles who finished first and second in Roy Morgan’s Most Trusted Brand Awards for 2023

However, in recent months a shift is underway, with distrust rising as consumers struggling with the cost of living ask questions about the role of big retail, particularly supermarkets, in driving inflation amid publicity of high profits, growing government scrutiny and media coverage of the sudden departure of Woolworths’ CEO. As a result, Demasi said careful monitoring of distrust – and managing it – will be critical in 2024.

Roy Morgan preliminary forecast for 2024

Roy Morgan’s preliminary forecast for retail sales growth is 1.2% for 2024. A continued flattening of retail sales is forecast for the next 12 months.

In line with the usual seasonal trend, an uptick of $20 billion is forecast for the second half of the year which is driven by Christmas sales and now Black Friday sales in November.

However, the second half of the year may see further growth thanks to some factors that could potentially boost the spending power of consumers.

These include a continued drop in inflation, likely interest rate cuts, stage 3 tax cuts (even as modified, now set to boost middle income earners), a drop in electricity prices (thanks to the 50% drop in the wholesale cost of energy finally flowing down to retail prices from July.

“One of the key factors to look out for in 2024 as consumers continue to deal with high interest rates and lingering inflation is that spending growth on the food category (which comprises about 40% of total monthly retail sales and is regarded as non-discretionary spending) is set to grow at twice the rate of the non-food categories (discretionary spending) during 2024,” Demasi concluded.

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