Retail spending rose by 0.9 per cent in March – the strongest gain in 11 months. After adjusting for inflation, retail trade rose by 1.8 per cent in the March quarter – the biggest gain in almost three years.
- In the March quarter, retail prices fell by 0.9 per cent – the biggest price fall in almost 30 years of records. Prices are unchanged on a year ago, the lowest result in seven years.
- The NAB business confidence index rose from +2.6 in March to +3.7 in April, but this was still below the long-run average of +6.3. However, business conditions fell from +3.4 in March to a six-month low of -0.1 in April. The survey of 400 businesses took place from April 23-30 – before the May 1 super-sized rate cut.
- Bad news for job seekers: The number of job advertisements fell for the first time in four months, dropping 3.1 per cent in April.
What does it all mean?
- Australia’s retailers have finally something to celebrate. Not only did spending lift in March by the biggest margin in almost a year, once you adjust for inflation, the gain over the March quarter was the best in almost three years. No one will be getting carried away with one month’s sales result. But it shows there is life out there in consumer land.
- Why did we start to spend again? It seems like lower prices had a lot to do with it. There has never been a bigger fall in retail prices in 30 years. A stronger Australian dollar, cheaper food, on-going innovation in technology goods, strong global competition and good old fashioned discounting have prompted Aussies to part with their cash again.
- The big winners have been specialised food stores, cafes and restaurants with consumers seemingly giving up on renovating and decking out their homes and focussing on food instead. The lift in sales at butchers, bakers, fruit & veg shops and seafood stores over the March quarter was the best in five years. And the increase in cafes & restaurant trade was the best in 18 months. Cheaper prices had a lot to do with it – even prices at cafes & restaurants fell 1.0 per cent in the March quarter – a record fall.
- The biggest casualty was in household goods like carpets, furniture, hardware and garden supplies where spending slumped 3.3 per cent in inflation-adjusted terms over the March quarter
- The clear conclusion from the raft of economic data out today is that the Reserve Bank can cut rates again. However the RBA is likely to take a few more months to weigh up all the influences. CommSec is pencilling in a rate cut in August after the next inflation data.
What do the figures show?
Retail trade
- Retail trade rose by 0.9 per cent in March – the biggest increase in 11 months. Sales had previously risen by 0.3 per cent in February and 0.4 per cent in January. Annual spending growth lifted from 2.1 per cent to 3.7 per cent.
- Non-food retailing rose 1.0 per cent in March after a scant 0.1 per cent rise in February. Sales by chain-store retailers and other large retailers rose by 1.6 per cent in March – the best gain for over two years (November 2009).
- Sales rose across all states and territories, led by ACT, up 1.5 per cent, with Victoria up 1.3 per cent and NSW and Western Australia up 1.2 per cent.
- In real (inflation-adjusted) terms, retail spending rose 1.8 per cent in the March quarter – the biggest rise in almost three years (since June quarter 2009). Annual growth lifted from 1.4 per cent to 2.9 per cent – still below the decade average of 3.7 per cent.
- The biggest gain in the quarter was by “specialised food retailing” (butchers, bakers, fruit, seafood stores), up 8.0 per cent. Next best was cafes & restaurants, up 5.9 per cent.
- Department stores posted the best real growth in five years (up 2.6 per cent) in the March quarter in response to 0.8 per cent fall in prices (biggest drop in over a decade).
- Biggest drop in real spending was by Furniture, Floorcovering and Textile Goods Retailing, down 3.3 per cent, and Hardware, Building & Garden Supplies Retailing, also down 3.3 per cent.
- Only four of the 15 detailed retail classifications recorded price increases in the March quarter. Six of the 15 retail sectors are recording annual price deflation (falling prices).
Job advertisements
- The combined number of internet and newspaper job advertisements, as tracked by ANZ, fell for the first time in four months, dropping by 3.1 per cent in April after gains of 0.7 per cent in March, 3.3 per cent in February and 7.4 per cent in January. Job ads are down 1.7 per cent on a year ago.
- Newspaper job ads rose for the second straight month, up by 0.1 per cent in April, while the far larger component of internet job ads fell by 3.2 per cent.
- ANZ provides data on newspaper job ads by state but given their minor importance in relation to internet ads and poor record in tracking total advertisements, the data is not useful for analytical purposes.
National Australia Bank Business Survey
- The National Australia Bank business confidence index rose from +2.6 in March to +3.7 in April. But the business conditions index fell from +3.6 to a six-month low of -0.1. Both readings are below long-term averages.
- The index of trading conditions slumped from +7.5 to +2.0; profitability fell from +2.7 to -4.1; employment rose from +0.5 to +2.2; and forward orders fell from -1.0 to -1.5. It was the 13th straight month that forward orders have contracted.
- Inflationary pressures remain well contained. The monthly reading of labour costs “picked up to a modest 1.1 per cent (quarterly rate) in April. The survey suggests that wage costs pressures are reasonably well contained and are unlikely to be too concerning for policy makers.” Prices rose at a 0.1 per cent quarterly pace, a similar result to March. Retail prices fell at a 0.7 per cent quarterly rate in April. But bucking the trend, purchase costs rose at a 0.7 per cent quarterly rate in April, up from the 0.4 per cent growth in March.
- Capacity utilisation slumped from 81.0 per cent to a 34-month low of 79.4 in April. The long-term average stands at 81.2 per cent. In April, 69 per cent of firms report that they did not require credit – a record high.
What is the importance of the economic data?
- The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
- The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
- The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
What are the implications for interest rates and investors?
- Inflation has been replaced by deflation, setting up the prospect of another cut in interest rates. Prices won’t continue to fall, and in their absence the Reserve Bank can step in and maintain spending momentum by cutting prices.
- Department stores had a good quarter, but it appears that the biggest drop in prices in a decade had a lot to do with the lift in sales. All businesses will be fixated on reducing costs in the current environment because lifting prices is out of the question.
- The business survey was undertaken before the Reserve Bank delivered the super-sized rate cut in early May. But it is clear from the survey that inflationary pressures are well contained, entrenching the view that interest rates can be cut again.
- The drop in job ads isn’t a great concern as yet as it’s just the first fall in four months. But it’s clear that businesses remain cautious about hiring, investing and spending in the current environment.