Record declines in retail sales and job ads

Retail trade; Skilled job vacancies; US economic forecasts

• Retail trade: ‘Preliminary’ retail trade fell by a record 17.9 per cent in April after rising a record 8.5 per cent increase in March.
• Skilled job vacancies: In trend terms, the Internet Vacancy Index (IVI) fell 16.4 per cent in April (or 18,400 job advertisements), the largest monthly decline since the series began over 14 years ago (January 2006).
• US forecasts: The independent Congressional Budget Office has provided updated economic forecasts.
• Chinese interest rates: Chinese interest rates remained steady in May with the 1-year and 5-year Loan Prime Rates unchanged at 3.85 per cent and 4.65 per cent, respectively. The 5-year rate is the reference rate for mortgages and was reduced by 10 basis points in April.

Retail trade data is important for consumer-focussed companies. The internet job vacancies data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies

What does it all mean?

• Understandably retail sales came back to earth with a thud in April after the record lift in March. But the volatility is set to continue as retail sales are likely to bounce higher this month (May) as more stores re-open. Perhaps the shape will be more like an ‘N’ rather than the ‘V’, ‘U’ or ‘W’ curves that we often hear about.
• The good news is that the ‘COVID curve’ is still flat, consumer confidence is improving and people are returning to their workplaces. Its baby steps. But Australia is moving in the right direction. Still, as health authorities stress, social distancing needs to be maintained together with good hand hygiene.
• Businesses must begin their re-opening preparations. Some savvy businesses, like clubs, have used the past few months to refurbish, so they are ready to greet patrons and perhaps entice new clients, customers or members.
• The latest US economic forecasts are also remarkable. The independent Congressional Budget Office (CBO) expects the economy to contract at a 38 per cent annual rate in the June quarter and then rebound 21.5 per cent in the September quarter and lift another 11.5 per cent in the December quarter. But while economic activity will rebound, the main worry in the US, as it is in Australia, the jobless rate could stay elevated for a longer time, restraining prospects for businesses.

What do the figures show?

Retail trade – April

• ‘Preliminary’ retail trade fell by a record 17.9 per cent in April after rising a record 8.5 per cent increase in March.
• Retail trade in April was down 9.4 per cent over the year.

The ABS reported:

• “The fall in seasonally adjusted terms in April 2020 was driven by the Food retailing industry, which fell 17.1 per cent (-$2,444.3 million) in April, following a 24.1 per cent rise in March 2020. Sales in Food retailing are 5 per cent above the level of April 2019.
• Analysis of supermarket and grocery store scanner data shows that monthly retail turnover fell in original terms for Non-Perishable Goods, Perishable Goods and All Other Products by 23.7 per cent, 15.3 per cent and 24.5 per cent respectively in April 2020 compared to March 2020. These falls follow significant unprecedented demand in March 2020 where Non-Perishable Goods rose 39.0 per cent, Perishable Goods rose 21.6 per cent and All Other Products rose 30.5 per cent.
• The April month saw further strong falls in Cafes, restaurants and takeaway food services and Clothing, footwear and personal accessories retailing. Businesses reported that regulations regarding social distancing measures limited their ability to trade as normal for the entire month. Turnover in Clothing, footwear and personal accessories, and Cafes, restaurants and takeaways in April 2020 is around half the level of April 2019.
• April also saw a strong result for Online retailing, with 10 per cent of total retail turnover purchased online.”
• The ABS also added: “The food retailing industry, which saw a strong rise in March due to unprecedented demand, fell 17.1 per cent from March 2020. Additional analysis indicates that the majority of products which rose substantially in March recorded falls in April 2020, however they remained at higher levels than April 2019.
• While March saw a mix of impacts related to COVID-19 across industries, these impacts were overwhelmingly negative in April, as regulations regarding social distancing measures limited the ability of businesses to trade as normal for the entire month. Cafes, restaurants and takeaway food services, clothing, footwear and personal accessory retailing, and department stores fell heavily in April and there were no offsetting rises in the other industries. Turnover in clothing, footwear and personal accessory retailing, and cafes, restaurants and takeaways is around half the level of April 2019.”

Skilled Job Vacancies – April

• In trend terms, the Department of Employment Internet Vacancy Index (IVI) fell 16.4 per cent in April (or 18,400 job advertisements), the largest monthly decline since the series began over 14 years ago (January 2006).
• Over the year this fall was more pronounced, with job advertisements down by 46.1 per cent (80,600). The IVI now stands at an all-time series low of 94,300.
• In seasonally adjusted terms, new job advertisements fell 42.2 per cent (48,900 positions). Ads are down on a year ago by 61.6 per cent or 107,500 positions.
• Job ads across states and territories in trend terms: NSW (down 15.5 per cent); Victoria (down 19.5 per cent); Queensland (down 12.5 per cent); South Australia (down 11.3 per cent); Western Australia (down 14 per cent); Tasmania (down 11.2 per cent); Northern Territory (down 9.6 per cent); and ACT (down 8.7 per cent).

According to the Department of Employment:

•  “Job advertisements decreased in all eight broad occupational groups in April 2020. The strongest falls were recorded for Clerical and Administrative Workers (down by 20.7 per cent), followed by Sales Workers (20.0 per cent) and Managers (17.5 per cent).”
• “Falls were also recorded in all occupational groups over the year to April 2020. The strongest falls were recorded for those same occupational groups: Sales Workers (down by 54.6 per cent), Clerical and Administrative Workers (54.5 per cent) and Managers (52.3 per cent).”
• “Over the year to April 2020, all 48 detailed occupational groups recorded falls in job advertisements. The largest decrease was recorded for General-Inquiry Clerks, Call Centre Workers, and Receptionists (down by 7180 job advertisements), followed by Business, Finance and Human Resource Professionals (5130), Corporate Managers (5060), ICT Professionals (4360) and Sales Assistants and Salespersons (4280).
• Over the year to April 2020, in three month moving average terms, job advertisements decreased across all 37 IVI regions. The strongest decreases in job advertisements were recorded in Launceston and Northeast TAS (down by 44.5 per cent), followed by Sydney (39.3 per cent), Melbourne (38.7 per cent), Hobart & Southeast Tasmania (37.0 per cent), and Geelong & Surf Coast VIC (34.3 per cent).
•   The decline in job advertisements was stronger on average in capital cities (35.2 per cent) compared with regional areas (22.3 per cent).”

US economic forecasts

• The non-partisan US Congressional Budget Office has provided updates economic forecasts. The report can be found here
• The CBO “estimates that real (adjusted for inflation) gross domestic product (GDP) will contract by 11 percent in the second quarter of this year, which is equivalent to a decline of 38 percent at an annual rate. In the second quarter, the number of people employed will be almost 26 million lower than the number in the fourth quarter of 2019.
• By the end of 2021, real GDP is projected to still be 1.6 percent lower, the unemployment rate 5.1 percentage points higher, and the employment-to-population ratio 4.8 percentage points lower compared with their values in the fourth quarter of 2019.”
• After a 37.7 per cent annualised fall in the June quarter (or second quarter), GDP is tipped to grow 21.5 per cent in the September quarter and rise at a 10.4 per cent annualised rate in the December quarter. Unemployment is expected to peak at 15.8 per cent in the September quarter and fall to 11.5 per cent in the December quarter. But in December quarter 2021, the jobless rate is still seen high at 8.6 per cent

What is the importance of the economic data?

• The Australian Bureau of Statistics’ (ABS) provides preliminary estimates for Australian retail trade. The estimate is compiled from the monthly Retail Business Survey and is based on preliminary data provided by businesses that make-up approximately 80 per cent of total retail turnover and is therefore subject to revision. The final April estimate will be released on 4 June 2020.
• The ABS 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 Department of Employment releases a monthly Internet Vacancy Index. The index is based on a count of online job advertisements newly lodged on three main job boards (SEEK, CareerOne and Australian JobSearch) during the month. The index is the only publicly available source of detailed data for online vacancies, including around 350 occupations (at all skill levels), as well as for all states/territories and 37 regions.

What are the implications for investors?

•  Even economic data for April is now considered ‘ancient history’. Spending and jobs declined over April as the COVID-19 virus caused businesses to shut down. But we are now seeing a re-awakening in Australia, especially in the north and west. Shops are slowly re-opening and people are venturing out of their homes.
• It is always important to remember Federal Treasury’s estimates of the boost to the economy on an easing of lockdown restrictions. Treasury believes that an easing of the three stages of lockdown restrictions will boost economic activity by $9.4 billion a month.
• The Federal Treasurer noted: “Of the $9.4 billion, increasing demand, including in retail, will contribute $2.9 billion.
• The opening of cafes, pubs, clubs, entertainment venues, health and fitness gymnasiums will contribute $2.4 billion.
• While the opening of schools will contribute nearly $2.2 billion and other industry sectors, like local government, museums, and parks a further $1.2 billion.
• The relaxation of travel restrictions is expected to contribute around $700 million.”
• Looking ahead, consumers will likely be cautious in how they respond to the re-opening of the economy. So the economy will rely on areas like construction and mining to provide momentum. The bringing forward of infrastructure projects and an increase of local community maintenance and refurbishments will be important in this regard.