There are some promising signs emerging for Australia’s retail sector.
- Consumer sentiment sits at multi-year highs, employment is growing strongly and retail sales have beaten expectations in the past couple of months.
- However, it’s not all good news. The CBA’s economy-wide spending indicator fell to a 15-month low in June, led by another decline in New South Wales.
After a weak start to the year, some promising signs are stating to emerge for Australia’s retailer sector.
Consumer sentiment has risen to a multi-year high, helped by tax cuts delivered by the federal government, and retail sales have also picked up over the past two months, a trend that look set to continue based on the National Australia Bank’s cashless retail sales index for June.
Employment growth, after a slow start to the quarter, also picked up strongly in June with nearly 51,000 jobs created.
However, with household income growth remaining weak and debt levels high, there is still plenty of uncertainty as to whether these green shoots are the start of a turnaround or yet another false dawn when it comes to the outlook for spending levels.
The latest Business Sales Indicator (BSI) from the Commonwealth Bank underlines the need for caution.
It increased by a paltry 0.2% in June in trend terms, continuing to decelerate from levels seen in late last year and in early 2018.
“The BSI posted the slowest growth in 15 months,” said Ryan Felsman, Senior Economist at Commsec, the Commonwealth Bank’s broking division.
“While sales in 16 of the 19 industry sectors rose in trend terms, on the other side of the equation sales fell for retail stores — outside of clothing and apparel specialists — and government services, followed by transportation.”
Spending at retail stores and government services both fell by 1%, while outlays on transportation slipped by 0.5%.
“Spending on transportation has fallen for five consecutive months now,” Felsman said. “Rising crude oil prices, which are near three-and-a-half-year highs, have pushed up unleaded and diesel fuel prices.”
By state and territory, spending levels increased in all locations except for New South Wales where they fell by 0.4%, on top of a 0.1% drop in May, hinting that recent declines in house prices may be impacting consumer behaviour despite strong employment growth over the past year.
At the other end of the spectrum, sales in the Northern Territory, South Australia and Tasmania all grew by 0.6%, outpacing gains of 0.5% in the ACT and Western Australia and 0.4% increases in Queensland and Victoria.
The BSI tracks the value of credit and debit card transactions processed through the Commonwealth Bank merchant facilities over a specific month, and includes spending on retail goods as well as services. It does not include cash transactions.
As such, it says it’s comparable to nominal household consumption expenditure in Australian GDP. Household consumption is the largest part of the Australian economy at just under 60%.
While it only tracks spending processed through Commonwealth Bank terminals, as Australia’s largest retail bank, it is likely reflective of broader spending patterns across the economy.
Australia’s June retail sales report will be released on Friday, August 3.
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