Australia: Retail sales lose momentum – Westpac

Simon Murray, Economist at Westpac notes that Australia’s July retail sales printed below expectations, flat over the month against consensus expectations for a 0.2% gain.

Key Quotes

“June was also revised down to 0.2% from 0.3%. The reading sees annual sales growth ease back a touch to 3.6%yr from 3.7%yr in June.”

“The soft outcome confirms that Q2’s rebound on a weather affected Q1 has faded, with the underlying fundamentals of weak wages growth and shaky consumer sentiment clearly weighing on spending.”

“The first few months of the year saw significant weather disruptions over the eastern seaboard including: a higher than normal number of heatwaves in Jan-Feb; a higher number of wet days in Feb-March; and Cyclone Debbie later generated severe weather conditions across Qld and northern NSW.”

“As a result, retail sales significantly underwhelmed in Q1. Come Q2 as the weather normalised, retail sales rebounded with a +1.0% in April and a +0.6% in May. However by June, momentum was fading with a 0.2% gain, and now with a flat reading in July, it is clear that the rebound has passed.”

“In July, the majority of the categories were disappointing. Department stores posted another weak result, down 2.8%, possibly reflecting continued discounting. Household goods fell 1.7% following gains in May (+2.2%) and June (+0.7%). Its annual pace of 3.3% is a bit surprising given that we have high levels of housing construction - many of the items in this category relate to the building and the fit-out of newly built dwellings. Clothing, footwear & personal accessories were also soft at -0.2%.”

“A positive was food retailing - the largest category - rising 0.7% including a 2.0% lift in liquor retailing and a modest 0.5% rise in supermarket and grocery stores. Other retailing also increased 1.3%, centred on gains in other recreational goods.”

“Within the state detail, NSW made a notable 0.4% decline. This partly relates to unseasonably warm weather in the month. SA and Tas retraced some earlier gains, down 0.8% and 0.9% respectively. Vic rose 0.4% to now be the quickest on an annual basis at 5.5%, spurred by high population growth coinciding with strong employment gains. That dynamic is playing out in reverse in the mining states. WA did lift 0.6% but is the slowest yearly at 1.4%. Qld was up 0.2% following some weather related volatility.”

“Overall, the soft outcome is indicative of the constraints on consumer spending. Though jobs numbers have increased of late, wages growth remains subdued, limiting aggregate incomes. Meanwhile, a slowing established housing market and recent interest-only mortgage rate rises are underpinning a cautious household.”