Modest Increase of Consumption. Hope for Christmas Sales

Over the past few years, expenditure on private consumption rose more rapidly than incomes because private households continued to spend in spite of the reticent development of incomes. As a consequence, the propensity to save declined and remained at a steady low level in the first half of 2002. Nevertheless, spending on consumption exceeded the actual level of the previous year by just 0.2 percent. One major reason for this was the slack growth of incomes, faltering under the effects of a cyclical downturn, which could not be compensated by the introduction of the child-care benefit. The growth of consumption being mediocre at best is due mainly to the demand for durable goods (cars, furniture, jewellery, electric and electronic equipment), which is highly responsive to the business cycle, falling below the level of the first half of 2001 by 2.2 percent. Demand for such goods sagged as a consequence of general income developments and the resistance to purchases in private households in connection with labour market developments. Demand also appears to have been stymied by the introduction of euro cash (which resulted in purchases advanced to the fourth quarter of 2001 and weak demand after the end of the double price marking period). Demand for non-durable goods and services (food, heating, rental, etc.), which constitutes a stabilising element in consumer demand in general and which changes little in the course of a business cycle, slightly rose in the second half of 2002 (by 0.6 percent). Weak demand on the part of consumers also affected retailing. According to Statistics Austria, retailing sales (at constant prices and excluding motor vehicles) stagnated in the first six months of 2002 at the previous year's level. Growth during the double price marking phase was cancelled out by a subsequent decline. Even when seasonally adjusted, demand dropped once the double price marking phase had expired. On average in July and August, real retail sales once again topped those of the previous year (by 1.5 percent), raising hope in retailers for this year's Christmas business. Christmas is gradually losing its former importance as a sales prop, mostly because of rising affluence, greater variation in the dates for paying the Christmas bonus, changes in consumer behaviour (holiday trips taken around Christmas, consciously refraining from giving presents), lower birth rates (Christmas as a the celebration of and by children), and less piety (problem of identifying with the religious occasion). Yet it is still of eminent importance to some sectors of the economy, as evidenced by peak sales in December. According to the WIFO models, Christmas-driven retail sales (defined as that part of the December sales in excess of "normal" sales), should arrive at and may perhaps even surpass, the previous year's level in real terms.