Retail spending rose by 0.5 per cent in May after lifting by an upwardly revised 0.1 per cent in April. Annual spending growth rose from 2.4 per cent to 3.5 per cent.
- Non-food retailing rose by 0.9 per cent in May to be 3.4 per cent higher than a year ago – marking the biggest annualised gain in nearly two years.
- Spending rose most at electrical and electronic stores up 1.8 per cent. Healthy gains were recorded for cafes, restaurants and takeaway food as well as newsagents and bookstores. Footwear and Liquor store sales also received a boost. The biggest drop in spending was at supermarkets.
What does it all mean?
Despite criticism in some quarters, the government handouts have paid dividends. Retailers enjoyed a much needed boost to sales in May with sales up 0.5 per cent. And more importantly the $2.3 billion that the Federal Government distributed in May and June, coupled with tax cuts to low and middle income earners, will support a further improvement in activity in coming months.
The windfall one-off assistants payments allowed consumers to accelerate planned purchases that they would have been saving for, and electrical, computer and technology stores were the lucky recipients. Spending at electrical retailers rose by a healthy 1.8 per cent – marking the second best result since December 2010. In addition department stores, cafes & restaurants and even newsagents and bookstores recorded a healthy increase in activity.
Interestingly without the fiscal stimulus, total sales may have posted a much more anaemic 0.1-0.2 per cent result for May. Granted the half a per cent rate cut in May would have provided a modest boost to confidence but it would not have had a material impact on household budgets. The impact of the rate cuts should also support activity over the medium term.
The better than expected retails sales result resonated across most of the states with the exception of Tasmania, South Australia and the ACT. And in annual terms the mining states continue to be enjoying the large slice of activity. Retail sales across Western Australia stood 10 per cent higher than a year ago, while sales in the Northern territory were up over 5 per cent compared with a year ago. The improvement in retail activity and an expectation of strong sales in subsequent months will certainly limit retailers from cutting further staff in the near term.
Despite the improvement in sales there is no doubt that lower pricing is playing a key part in enticing a rather nonplussed consumer. Most businesses would tell you that it is hard work to make a quid. The key is confidence, until confidence levels stage a sustained improvement it is likely that sales will be patchy.
The Reserve Bank Board would be encouraged by the improvement in retail sales. However policymakers are well aware of the array of sectors that are still doing it tough. And given the downside risks to domestic and global growth it is likely that the Reserve Bank will maintain an easing bias. CommSec expects the Reserve Bank to cut interest rates once again by a quarter of a per cent in August.
What do the figures show?
- Retail trade rose by 0.5 per cent in May after lifting by an upwardly revised 0.1 per cent in April. Annual spending growth rose from 2.4 per cent to 3.5 per cent.
- Non-food retailing rose by 0.9 per cent in May after a 0.1 per cent fall in April. Sales by chain-store retailers and other large retailers rose by 0.5 per cent in May after a fall of 0.4 per cent in April. Sales by chain-store retailers and other large retailers were up 3.6 per cent on a year ago – marking the best annualised gain in a year (April 2011).
- Sales rose across five states and territories, led by Northern Territory up 1.5 per cent, with Western Australia, up 1.1 per cent, NSW, up 0.7 per cent, and Queensland and Victoria, both up 0.5 per cent. Spending fell most in Tasmania down 0.9 per cent, followed by South Australia (down 0.6 per cent) and the ACT (down 0.1 per cent).
- The biggest gain in the month was by “Electrical and electronic goods retailing” up 1.8 per cent. Healthy gains were recorded for “Cafes, restaurants and takeaway food” and “Newspaper and book retailing” both up 1.4 per cent. “Footwear and other personal accessory retailing” and “Liquor store” sales were up 1.2 per cent in May.
- The biggest drop in spending occurred at “Supermarket and grocery stores” down 0.3 per cent after rising by 0.4 per cent in April.
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.
What are the implications for interest rates and investors?
Over the last few months consumers have been spending a little bit more freely however it is still early days.
The Reserve Bank will maintain an easing bias and is likely to discuss cutting rates again at the August meeting. We have pencilled in a rate cut in August. The softness in non-mining sectors, the risks surrounding Europe and slower Chinese economic activity all are factors adding to the likelihood of another rate cut. The good news is that we can contemplate a rate cut because inflation is under control. But the June quarter inflation data – released at the end of July – will be closely assessed by policy makers.
6 July 2012