Australia household spending up modestly in June as services sputter

SYDNEY (Reuters) -Australian household spending rose modestly in June as a rush for cars and electronics was offset by a slump in services, showing lower borrowing costs and higher real incomes are only slowly flowing into the broader economy.

Tuesday's data from the Australian Bureau of Statistics showed its monthly household spending indicator (MHSI) rose 0.5% in June, just half of the gain seen in May. Analysts had looked for an increase of around 0.8%.

"Goods spending rose 1.3% as households spent more on food, new vehicles, and electronics," said Robert Ewing, ABS head of business statistics.

However, spending on services fell 0.5% as consumers cut back on air travel and health services.

The annual pace of spending growth did pick up to 4.8%, the fastest since early 2024 and well above a trough of 1.5% touched late last year.

In volume terms, spending rose 0.7% for the entire June quarter to A$217.8 billion ($140.89 billion), implying a slim 0.2 percentage point contribution to gross domestic product.

Household spending accounts for around 52% of GDP but has added little to economic growth for more than a year.

Analysts have been hoping interest rate cuts from the Reserve Bank of Australia in February and May and an easing in cost-of-living pressures would make more of an impact.

A report on consumer prices out last week showed inflation hitting a four-year low in the second quarter, leading markets to fully price in another rate cut when the RBA meets on August 12.

The data also looks to have brightened the mood among consumers, with an ANZ survey on Tuesday showing its index of confidence bounced a sharp 3.9% in July to 90.6, the first reading above 90.0 since May 2022.

The MHSI series has replaced retail sales data as the main ABS series on spending. It covers 68% of household consumption, more than double the retail survey, and offers a better guide on what to expect from household consumption in GDP.

($1 = 1.5458 Australian dollars)

(Reporting by Wayne Cole; Editing by Jamie Freed)