GDP figures released earlier this week confirmed Australia’s economy is the weakest its been since the GFC. Economists have argued that if it weren’t for government spending and exports, the economy would have contracted last quarter.

Consumer spending stagnating has hit several industries, particularly retail. Consumer spending did grow, but the gap between spending growth and income growth was only 0.4 per cent.

This is despite interest rates being at record lows, consumer confidence being at reasonable levels and relatively low unemployment.

But some small cap industries have not been suffering. In particular spending on medicines, medical aids and therapeutic appliances rose by 8.8 per cent in real terms.

The ASX small cap health sector has benefited; as of today it has gained 12 per cent in the last 12 months.

Households also spent more on communications — specifically 4 per cent more. In a similar fashion, small caps rose 11 per cent in 12 months.

This year’s most successful IPO was a company from this sector, Uniti Wireless (ASX:UWL) which is up 462 per cent.

Which industries are hurting?

With health being the biggest winner, it wasn’t surprising that the sharpest spending fall was in cigarettes and alcohol.

This was followed by the spend on new vehicles, which fell 3.7 per cent. Conversely, transport services gained 4 per cent.

Also falling was spending on electricity, gas and other fuels, which dipped 1 per cent. ASX energy small caps are down 3.2 per cent in 12 months.

CommSec economist Craig James said consumers had accepted slower wage growth than in years gone by and were spending with appropriate caution. He also warned retailers they had to adapt to consumer preferences in order to survive in a crowded market place.

“Consumer spending is truly global in 2019, meaning that sellers of consumer goods and services need to stand out from the local and overseas rivals,” he said.

“Those that do adjust and meet consumer needs and preferences will continue to do well. It is important that retailers don’t over-react by cutting expenses too far rather than seeking to grow revenues.”