International trade; Retail trade
- Retail trade: Retail trade was flat in October. The annual growth rate fell from 2.5 per cent to a 2-year low of 2.1 per cent.
- Foreign trade: The trade surplus fell from $6.85 billion in September (previously $7.18 billion) to $4.5 billion in October. Australia has recorded 22 successive monthly trade surpluses. The rolling annual surplus was a record $64.4 billion in the year to October.
- Record China & US exports: Australia’s rolling annual trade surplus with China rose from $66.82 billion to a record $67.79 billion in October. Annual exports to China were at new record highs. Australia exported a record $14.49 billion of goods to the US in the year to October.
Retail trade data is important for consumer-focussed companies. The trade data is also instructive on income flows in the economy. .
What does it all mean?
- If you have been given a handout by the Government, would you spend it immediately or wait to spend it at a time when it had greater purchasing power – like Black Friday/Cyber Monday sales? Most people would say the latter, and judging by the retail trade figures, that is likely what Aussie consumers have done. We’ll have to wait for the November and December sales figures to see if consumers engaged in more significant retail therapy.
- Food was on the minds of Aussie consumers in October with more spent at specialised food outlets like bakers and butchers, together with cafes, restaurants and liquor outlets. Newspapers and electrical goods were shunned – no doubt the latter awaiting sales in late November.
- The trade date highlights the strong performance of the export sector – a sector supporting economic growth at a time when consumers are seemingly reluctant to spend. Exports to both China and the US hit record highs over the past year despite the US-China trade war and softer global economic growth.
- The interest rate cuts have indirectly boosted exports via a weaker Aussie dollar. Another factor has been the US-China trade war. China has been stimulating its economy and this has boosted demand for Aussie goods. But it is wrong to say that the Australian economy hasn’t weakened in line with other international economies. The uncertainty on US-China trade has made Aussie consumers and businesses less inclined to spend.
Retail trade – October
- Retail trade was flat in October. The annual growth rate fell from 2.5 per cent to a 2-year low of 2.1 per cent.
- Non-food retailing fell by 0.1 per cent in October and annual growth eased from 2.1 per cent to 1.4 per cent.
- Sales by chain-store retailers and other large retailers fell 0.1 per cent in October, the first fall in 10 months. Annual growth fell from 4.7 per cent to 4.0 per cent.
- Spending rose most in October: Specialised food like butchers, bakers (up 1.7 per cent) from cafes and restaurants (up 1.1 per cent)
- Spending fell most in October: newspapers & books (down 2.3 per cent) from electrical & electronic goods (down 1.1 per cent)
- Across states/territories: NSW (down 0.2 per cent); Victoria (down 0.4 per cent); Queensland (up 0.4 per cent); South Australia (down 0.5 per cent); Western Australia (up 0.2 per cent); Tasmania (up 1.4 per cent); Northern Territory (up 2.3 per cent); ACT (up 0.3 per cent).
What do the figures show?
International trade – October
- The trade surplus fell from $6.85 billion in September (previously $7.18 billion) to $4.5 billion in October. Australia has recorded 22 successive monthly trade surpluses. The rolling annual surplus was a record $64.4 billion in the year to October.
- Exports of goods and services fell by 5.1 per cent (exports of goods fell by 6.5 per cent).
- Imports of goods and services rose by 0.4 per cent (goods imports rose by 0.7 per cent).
- Exports were up by 6.0 per cent on a year ago, while imports were up by 1.6 per cent.
- Rural exports rose by 2.8 per cent. Exports of non-rural goods fell by 6.1 per cent.
- Within imports, consumer imports rose by 0.7 per cent, capital goods imports fell by 0.6 per cent and intermediate goods imports rose by 2.3 per cent.
- Consumption goods imports were up by 6.7 per cent on a year ago, capital goods imports rose by 8.2 per cent, while intermediate goods imports were down by 3.3 per cent.
- The net services deficit improved from $122 million to $37 million (smallest in 31 months).
- Australia’s annual exports to China rose from $145.43 billion in September to a new record high of $146.36 billion in October. Exports to China are up 30.0 per cent on a year ago. Exports to China account for 37.73 per cent of Australia’s total exports – a new record high.
- Australia’s annual imports from China fell from a record $78.61 billion to $78.57 billion in October. Annual imports were up by 7.2 per cent on a year ago – the slowest annual growth rate in 21 months. Imports from China accounted for a record 25.53 per cent of Australia’s total imports.
- Australia’s rolling annual trade surplus with China rose from $66.82 billion to a record $67.79 billion in October.
- Australia exported a record $14.49 billion of goods to the US in the year to October. Imports from the US totalled a record $34.06 billion in the year to October. Australia’s rolling annual trade deficit with the US rose from $19.40 billion to $19.58 billion in October.
What is the importance of the economic data?
- The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.
- 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?
- The strong trade accounts are supporting the Aussie dollar near US68 cents. If our trade accounts were not in the black – and at record highs – arguably the Aussie dollar would be far weaker. The Aussie is expected to stay in a US66-70 cent range over the next few months.
- Retailers have opportunity to benefit from tax cuts and rate cuts but the offering needs to be convincing, especially given competition from global as well as local retailers.
- Investors need to be on the outlook for anecdotes of retail activity in the next few weeks as a guide to prospects on consumer-focussed businesses.
- The Reserve Bank is now waiting to see what consumers do over the key spending season before deciding the next move on monetary policy.