Two key data releases this week gave investors a clearer read on where the Australian economy is heading. What does it all mean for your portfolio?

Household spending is rising again

The ABS Household Spending Indicator for July showed a 0.5% lift. Over the year, spending is now up 5.1 percent. That’s the fastest pace since late 2023.

Most of the growth came from services. Health spending jumped nearly 2 percent. People also spent more at restaurants and on transport. Goods spending fell slightly, but that was expected after a strong June. Discretionary spending rose 0.4 percent. Non-discretionary spending rose even more at 0.8 percent. That means people aren’t just spending on essentials. They’re also feeling confident enough to spend on wants, not just needs.

CommBank’s internal data had already flagged this pick-up. Their broader Household Spending Insights tool showed a similar trend.

GDP beat expectations

The national accounts confirmed what the spending data hinted at. The economy grew by 0.6 percent in the June quarter. That was a little stronger than most economists had forecast. Household consumption was the main driver.

This marks a turnaround from earlier in the year. Bad weather had slowed activity in the March quarter. That has now reversed. Easter and ANZAC Day falling close together also boosted Q2 spending. But the bigger story is real household income. It’s rising. Inflation is cooling. Interest rates have come down a touch. And confidence is improving.

Public sector spending didn’t help this time. In fact, it detracted from growth. That was due to a drop in infrastructure investment, especially in health and transport. Defence spending was also lower.

Still, annual GDP is now growing at 1.8 percent. That’s close to the Reserve Bank’s estimate of potential growth.

Productivity improves, but it’s patchy

Productivity is how much economic output we get per hour of work. It’s one of the big long-term drivers of wealth and wage growth.

The news here is mixed. In the June quarter, labour productivity rose 0.3 percent. Over the year, it’s now slightly positive. But the gains came mostly from the private sector. Public sector areas like health and education continue to weigh on the numbers.

GDP per capita — which measures output per person — also rose 0.2 percent. That sounds small, but it matters. It’s only the third time in 11 quarters that it has grown. Population growth has been strong, so we’ve been producing more overall without lifting output per person.

What does this mean for investors?

Consumers are spending again. The economy is responding. But that doesn’t mean more rate cuts are a given.

RBA Governor Michelle Bullock gave a speech this week. She said the rebound in private sector activity had been stronger than expected. That could reduce the need for more cuts next year. For now, most economists expect one more rate cut in November. Anything more would likely require a hit to the job market or signs the recovery is stalling.

For investors, this week’s data paints a picture of steady recovery. Consumer stocks and service sectors could benefit if spending keeps rising. But the uneven performance across regions and the risk of stickier interest rates are still factors to watch.