Consumer and business signs point towards ‘subdued’ recovery, economists say

Business turnover rose 2.9 per cent in July, the largest spike since May 2022, data from the Australian Bureau of Statistics (ABS) shows.

Growth was broad-based, with revenue rising across all industries, including a notable 4.6 per cent rise in the professional, scientific and technical services category to which accounting belongs.

The encouraging business results came alongside Deloitte Access Economics’ optimistic retail forecast, which showed that rising consumer confidence, falling interest rates and growing real wages had culminated in a strong economic outlook for retailers in September.

“Retailers are finally seeing some more substantial economic tailwinds, but the long-awaited retail recovery is still taking its time,” Deloitte Access Economics partner and principal report author, David Rumbens, said.

“The extended cost-of-living crisis has created a hangover in more cautious consumer behaviour – real wages are nearly 6% below their peak and consumer prices increased by almost a quarter in the five years to June 2025.

“However, moderating inflation, real wage growth and lower interest rates are already boosting consumer confidence. Most signs are pointing in the right direction, and we’re on our way to a stronger retail environment.”

Last week, June quarter GDP data revealed the strongest quarterly growth in consumer spending since 2022. While analysts noted that the spike was largely driven by temporary factors such as holiday spending and sales promotions, Deloitte’s retail analysis predicted a slow but steady consumer recovery.

“The lift in overall consumer spending hasn’t fully reached retailers yet, but there are clear signs that households’ capacity to spend is improving,” Rumbens said.

“A more supportive retail environment is anticipated after a few more consistent real wage growth results in households feeling better off.”

NAB’s monthly business survey found that business conditions rose 2 points in August, settling above their long-run average level. Business confidence fell 3 points, but still remained close to long-run average levels after consecutive months of improving sentiment.

“The August survey result gives us confidence in our view that the outlook for businesses continues to improve,” NAB chief economist Sally Auld said.

“Both business confidence and conditions have normalised and are around their long-run averages.”

Aligning with ABS findings, the NAB survey identified broad-based improvements in business conditions.

“Regions and industries in the economy which have faced headwinds in recent years have showed positive signs in recent months, adding to our confidence that the broader economy is on a better trajectory in the second half of the year,” Auld said.

AMP economist Shane Oliver said that economic indicators were cause for optimism, suggesting that tax cuts and rate cuts had worked to buoy consumer spending.

“Annual growth is at its strongest in nearly two years, consumer spending finally looks to be strengthening, per capita GDP rose after declining in nine of the last 11 quarters, productivity rose, and trade added to growth,” Oliver said.

“This is good news as it suggests rate cuts, last year’s tax cuts and some easing in cost-of-living pressures are enabling the economy to begin recovering from a per capita recession.”

At the same time, Oliver said that households remained under pressure as real wages remained below their 2020 levels and interest rates stayed in restrictive territory.

“Rate cuts so far have only reversed three of the 13 rate hikes between May 2022 and November 2023, or 0.75% of the total 4.25% cash rate hike,” Oliver said.

“And while wages are now rising faster than inflation real wages are down around 5% compared to five years ago and at the current rate of real wage growth won’t return to the 2020 levels until around 2032.”

These factors, as well as weak business investment, tariff uncertainty and weak productivity trends, would likely keep the economic recovery subdued, Oliver said.

“Overall, while growth was stronger than expected in the June quarter (the surprise on the day was just 0.1%), it’s likely that growth will be a bit weaker in the current quarter and the recovery will remain subdued.”