"In September, retail trade consolidated the large gains from August that were driven by warmer-than-usual weather. That brought forward some summer spending, in areas such as clothing & footwear, which led to weaker results in those areas during September," he writes.

"The outlook for the retail sector is fairly mixed. Cost-of-living pressures continue to weigh on Australian households, with budgets still tight. Those cost-of-living pressures are being offset by strong population growth, which has supported retail spending over the past year. 'Stage 3' tax cuts will obviously support the sector and so will the range of federal and state government policies designed to provide temporary support to households.

"Perhaps the biggest boost to the retail sector though might come in the form of interest rate cuts, with the market pricing in several rate cuts next year."

"Retail volumes rose 0.4% in the September quarter, marking the largest quarterly increase since the June quarter 2022, and that suggests that household consumption may be a little stronger in the September quarter than we've recently seen. Volumes are still 1.4% below their peak, with volumes per capita down 6.3%, after declining for nine consecutive quarters," he notes.

"That means that the average household is still consuming fewer goods than they were a quarter ago, and far fewer goods from their peak, with population growth supporting overall retail activity. Household budgets remain tight and many households continue to tighten their belts, prioritising essentials over discretionary items.

"The ongoing weakness in retail volumes per capita indicates that monetary policy is having the intended impact on Australian household spending. But that's been offset by strong population growth. Clearly the level of consumer spending is still sufficiently high to keep inflation above the RBA's 2-3% inflation target, particularly after accounting for the impact of government subsidies."