- Retail sales have again disappointed, falling by 0.1% yet again instead of growing as forecast, the latest figures from the Australian Bureau of Statistics have shown.
- That’s largely the result of long-stagnating wages which has forced Aussies to cut back on their shopping as they struggle to get by, according to Indeed economist Callam Pickering.
- The grim picture changes little for the Reserve Bank of Australia (RBA) which will be forced to cut rates to 0.5% by early next year, according to many economists.
Australians just keep cutting back as stagnating wages leave them with less and less each week.
That’s the picture painted in the latest retail figures, which show that again spending fell another 0.1% — despite forecasted growth of 0.2%.
“If the federal government was looking for good economic news, it was not to be found in the latest retail figures,” job site Indeed’s Asia Pacific economist Callam Pickering said in a note issued to Business Insider Australia.
Discretionary spending — spending on non-essential items — fell an even greater 0.3%, while non-discretionary tellingly grew 0.1%, as cost of living pressure grows.
“Spending growth remains weak for clothing & footwear, household goods and in department stores,” Pickering said.
“Even eating out took a dive in July [as] households appear to be tightening their belts and limiting discretionary spending. That’s precisely what you’d expect in an economic downturn.”
While spending has fallen nationally, one state is particularly hurting.
“Remarkably spending fell in every state except for Western Australia. Conditions in New South Wales have slowed rapidly, with annual growth on a trend basis the lowest in eight years,” Pickering said.
That’s despite having some of the strongest employment figures in the country, according to Commonwealth Bank senior economist Belinda Allen.
“On an annual basis, NSW is the weakest performer, with retail sales up just 0.5% over the year. The downturn in the housing market is the key factor given the outperformance of the labour market over this time,” she said in a note.
Crucially what the labour force hasn’t been able to achieve is a pay rise.
“Persistently low wage growth remains a key problem for the retail sector. Wage growth of just 2.3% simply isn’t conducive to a strong retail sector. In fact, if it wasn’t for Australia’s high population growth the retail sector would likely be in recession,” Pickering said.
That’s not to say it’s all bad news. Recent interest rate cuts should help ease some of the pressure on households along with tax cuts and a rise in the minimum wage.
But rate cuts can pose a catch-22 for the economy, according to Allen.
“There had been some hope that RBA interest rate cuts and tax rebates would start to lift consumer spending this month. This has not happened [and] instead consumer sentiment, which fell after two rate cuts, has translated into further weakness,” she said.
Really then it’s up to wage growth, something that has evaded the Reserve Bank of Australia (RBA) thus far, that is drastically needed.
“Until wage growth picks up, any improvement in retail conditions is likely to be temporary. Australian households are struggling to make ends meet and that is reflected in their spending decisions,” Pickering said.
“Any improvement in wage growth will be gradual, and far from certain given the recent increase in the unemployment rate, so don’t be surprised if retail conditions remain soft well into next year and beyond.”
If nothing else, the long-term trend of shrinking spending will change little for the Reserve Bank of Australia (RBA) as it weighs up how many more interest rate cuts are required to support the economy, Pickering said.
“They know that wage growth and the retail sector is weak. They know that conditions won’t improve materially until wage growth improves. That’s why the cash rate will be cut to 0.5% by early next year.”
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