'The concern is New South Wales': Retail spend has fallen in Australia's biggest state for two months now

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  • Australian retail sales grew by 0.3% in October, in lime with expectations. September’s 0.2% increase was revised down to show a smaller lift of 0.1%.
  • Non-food sales — deemed by many as a better indication on discretionary spending patterns — grew by a faster 0.5%.
  • Over the past year, sales and non-food sales increase by 3.6% and 3.3% respectively, similar to the rates reported in September.
  • But sales in New South Wales tanked again, raising concern that weakness in the housing market could lead to a broader spending slowdown.

Australian October retail sales remained subdued in October, continuing the trend that’s been in place for several years.

According to the Australian Bureau of Statistics (ABS), sales grew by 0.3% in seasonally adjusted terms, in line with market expectations.

Excluding food, turnover increased by a larger 0.5%, a reasonable result given many believe this provides a better indication of discretionary spending patterns across the country.

From a year earlier, total sales increased by 3.6%, the same pace seen in the 12 months to September. Ex-food, sales rose by a smaller 3.3% over the same period, down from 3.4% in September.

However, September’s increase of 0.2% was revised down to show a smaller gain of 0.1%, taking some gloss of the October result. Another big fall (-0.4%) in New South Wales was also reported, creating renewed doubt about broader spending growth across the country given the downturn in the housing market.

Belinda Allen, Senior Economist at the Commonwealth Bank, says sales trends in New South Wales need to be monitored closely in the months ahead.

“The concern is New South Wales,” she said.

“Given new dwelling prices have now been lower since July 2017 and reaching a peak to trough fall of close to 10%, this data will have to be watched to see if this trend continues.

“It could be an early sign of the wealth impact from lower dwelling prices.”

Matthew Hassan, senior economist at Westpac, said: “A 0.4% decline in sales in New South Wales is notable given the more advanced house price correction in Sydney.”

However, outside of New South Wales, there were some more pleasing trends in sales by category and location.

“Clothing, footwear and personal accessory retailing led the rises” said Ben James, Director of Quarterly Economy Wide Surveys at the ABS.

They alone surged by 2.6%, rebounding strongly after falling a month earlier.

Apart from weaker spending on eating out, the ABS said sales increased in all other categories.

“Gains were also seen in household goods retailing (0.6%), other retailing (0.5%), food retailing (0.2%) and department stores (0.4%),” James said.

“They were offset by a fall in cafes, restaurants and takeaway food services which declined by 0.9%.”

Mirroring the performance by industry, sales also rose in a majority of states and territories.

“In seasonally adjusted terms, there were rises in Queensland (1.1%), Victoria (0.6%), Western Australia (0.6%), the ACT (1.1%), South Australia (0.1%), the Northern Territory (0.6%) and Tasmania (0.1%),” James said.

“They were offset by a fall in New South Wales of 0.4%.”

However, rather than being influenced by falling home prices, the ABS said the decline in Australia’s most populous state was due to “poor weather impacting turnover for some industries”.

Whether the weather was really behind the drop is questionable given sales in New South Wales also fell in September, hinting the impact of falling property prices on household balance sheets is now changing consumer behaviour in Australia’s most populous state.

Given Sydney led the downturn in Melbourne’s housing market, there’s likely to be plenty of attention on data from both New South Wales and Victoria in the months ahead.

Paul Dales of Capital Economics expects recent trends in New South Wales will soon leads to a broader slowdown in spending across the country.

“While consumer spending seems to be holding up for now, we still think it will slow before long,” he said.

“We still think that the downturn in the housing market will result in further weakness in consumer spending next year.”

Joanne Masters, Senior Economist at ANZ Bank, was another who expressed caution about the outlook for spending.

“While consumer confidence remains elevated, households are facing several headwinds, not least ongoing falls in housing prices,” she said.

“We note the loss of momentum in retail sales in New South Wales, where house price falls have been steepest, leaving us cautious about retail sales growth in the months ahead.”

NOW READ: Concerns about a housing-led spending slowdown in Australia are growing — this chart explains why

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