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Economic Update

Retail trade disappoints in May despite positive influences on consumers

06 Jul 2015
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  • Retail spending rose by a modest 0.3% over May with annual growth now sitting at 4.7%.
  • Spending rose in food (+0.7%), household goods retailing (+0.8%), other retailing (+0.3%).  And retail spending fell in department stores (‑1.4%), clothing & soft goods retailing (‑0.8%) and cafes, restaurants & takeaway food services (‑0.2%).
  • A surge in housing construction is lifting spending in areas related to new building and renovations.  This trend is expected to continue while dwelling construction remains elevated.
  • The small business package in the Federal Budget should be positive for retail spending outcomes in June.
  • According to the ABS, online retail sales make up around 3% of total domestic retail sales.

The moderate increase in retail spending came in below market (and our own) estimates for a 0.5% increase.  Retail spending trends have disappointed over the past three months given all the positive influences on consumers at the moment.  These include lower interest rates, softer petrol prices, a lower Aussie dollar, higher housing construction lifting household goods‑related spending and a supportive Federal Budget for small business spending.  But at the same time, consumer sentiment remains sluggish driven by high unemployment concerns and wages growth is low.

Some of these positive influences were evident in the May data.  Household goods spending rose by 0.8% over the month thanks to an increase in areas related to residential construction (furniture, floor covering, houseware & textile goods and hardware, building & gardening supplies).  Higher construction drives household goods spending as consumers furnish their new homes.  The lift in dwelling prices also means that the costs of moving have increased and households are instead choosing to renovate.  The impacts of the petrol stimulus are not as evident as prior historical episodes would suggest.

Annual retail trade growth (at 4.7%) looks more respectable, especially given headline inflation running sub 2% at present.

Anecdotal evidence suggests that the small business package in the Federal Budget has had a positive influence on small business asset spending (e.g. electronics).  This impact should be more evident in the June data.

The patchwork nature of the economy is evident in the spending breakdown across the states.  The predominant spending was in NSW (+0.7% over the month).  QLD (+0.2%), WA (+0.2%) and TAS (+0.6%) also had small increases in retail sales.  VIC sales fell by 0.1% and sales were flat in SA.
The ABS is also doing some experimental analysis on the online retail industry in Australia.  At this stage, only original estimates are available which need to be read with caution.  Nevertheless, there are some interesting insights.  As at May, total online retail trade (for Australian retailers) made up around 3% of total retail sales.  A year ago it made up 2.5% of retail trade.  This does not include Australian spending on overseas purchases.  Trade balance data indicates that offshore spending is being stifled by the drop in the currency which should be positive for domestic retail sales outcomes.

 

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