Given consumer sentiment is average, & house prices are rebounding, we assume ~half the tax refunds are spent on retail, & another ~20% on other consumption, a relatively high ~0.7 marginal propensity to consume. This would boost retail sales in 19/20 by ~1%pt, with a temporary spike in Sep/Oct to ~5% y/y; & also lift real consumption in 2H-19 to above 2% y/y, after slumping in Q2-19 to a near GFC low of 1.4%. A key risk to our consumer outlook (1.8% in 2019, & 2.2% in 2020) is households save more, after the Q2 household savings ratio already dropped to 2.3%, the lowest since 2007, a small buffer if ‘caution’ returns (say trade wars lead to worries about unemployment). Indeed, the UBS Evidence Lab consumer survey showed a high 40% plan to save more in the next year. Furthermore, industry data suggests a disappointing recovery so far: July retail & August car sales surprisingly fell; surveyed retail sector business conditions collapsed to a record low in July; while listed company trading updates report retail conditions were getting slightly better through July & August, albeit still soft overall.
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