A household spending slowdown is squeezing the economy

A fall in the value of retail sales suggests a sharp decline in household spending, with real GDP set to contract for the first time since March 2011. The RBA should seriously consider a rate cut to give consumers a boost.

Household spending has slowed significantly over the past few months and, with declining real wages and budget cuts weighing on the household budget, I expect spending to be fairly soft over the remainder of the year.

Meanwhile, building approvals rebounded in May, driven by the volatile units sector, but that is likely to provide only a temporary reprieve. Housing construction will support the economy over the next couple of years but is unlikely to have a significant effect given its small share of real GDP.

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