Australian retail sales tumbled in August, continuing a worrying downturn seen in recent months.
According to the Australian Bureau of Statistics (ABS), nominal spending fell by 0.6% in seasonally adjusted terms, missing forecasts for an increase of 0.3%.
The decline was larger than even the most pessimistic forecast offered by an individual economist, and was the steepest monthly decline since March 2013.
Excluding food, providing a better guide to spending on discretionary items, sales fell by a smaller 0.5%, leaving the increase on a year earlier at 2%.
Sales for July, originally reported as flat by the ABS, were also revised down to show a decline of 0.2%.
As a result of the ugly August report and downward revision to July’s figure, the year-on-year pace of sales slowed to 2.13%, the slowest increase since July 2013.
Sales have now fallen in four of the past seven months, interrupted only briefly by a bounce in April and May as a result of previous weather disruptions.
By category, the ABS said that spending on food (-0.6%), cafes, restaurants and takeaway food services (-1.3%), household goods (-1.0%) and clothing, footwear and personal accessories (-0.2 per cent) all declined, offsetting gains in department stores and other retailing of 0.7% and 0.1% respectively.
Adding to concerns, sales fell in every Australian state and territory.
“Victoria (-0.8%) and Queensland (-0.8%) led the falls,” said Ben James, director of quarterly economy wide surveys at the ABS.
“There were also falls in New South Wales (-0.2%), Western Australia (-0.6%), South Australia (-0.6%), the Australian Capital Territory (-0.8%), Tasmania (-0.7%) and the Northern Territory (-0.7%).”
Only this week the Reserve Bank of Australia (RBA) warned that “slow growth in real wages and high levels of household debt are likely to constrain growth in household spending”.
Today’s report, following a steep deceleration in sales in recent months, will little to address those concerns.
Indeed, according to the Australia’s latest Performance of Services Index (PSI) released by the Ai Group earlier this week, consumer-related sectors saw activity levels weaken sharply in September, continuing the pattern of August.
“Reluctant consumer spending saw activity shrink at a faster rate in September in retail trade (43.1 points), while the index for the hospitality sub-sector — measuring accommodation, cafes and restaurants — fell by 3.5 points to a record low of 35.7 points,” the Ai Group said.
“Respondents in retail and hospitality are reporting reduced spending by consumers due to a mix of increased household electricity costs, flat income growth, and relatively poor consumer confidence.”
The Ai Group report was for September, which suggests that the weakness in the ABS figures may extend into a third consecutive month.
If that does eventuate it does not bode well for Australian Q3 GDP given household consumption is the largest part of the Australian economy at just under 60%.
Retail sales accounts for around a third of total household consumption, so it’s not looking great based on the early indicators.
“While we are wary about reading too much into a single month’s result, August’s disappointing figures do tally with other data on the health of the household sector, such as the slump in car sales in recent months,” said Paul Dales, chief economist at Capital Economics.
“And even if retail sales were to recover somewhat in September, the very weak start to the quarter means that real consumption growth may well have slowed from 0.7% quarter-on-quarter in the second quarter to around 0.2% quarter-on-quarter in the third quarter.”
Dales says that the weakness in today’s report supports his view that the RBA won’t raise interest rates at all next year.
Callam Pickering, APAC economist for global job site Indeed, agrees that today’s report “is the type of development that will generate considerable debate within the Reserve Bank”.
“For months retail conditions appeared to be on the improve, as strong employment growth helped to offset the persistent weakness in wages, but that view has fallen apart over the past two months,” he says.
“[A] Lack of wage growth and high household debt have created a difficult retail environment and that will continue to contain retail sector growth over the next few years.”
According to separate data released by the ABS in August, average hourly pay rates for Australian private-sector workers grew by just 1.78% in the year to June, below the rate of inflation and the lowest level on record.
Average weekly earnings for private sector workers, including not only pay rates but the amount of hours worked, also went backwards in real terms, increasing by just 0.8% to $1,123.50 in the year to May.
With wage growth so weak, Australian households have been diverting more of their disposable income away from savings to spending in recent years, seeing the household savings ratio fall to 4.6% in the June quarter, the lowest level seen since before the global financial crisis.
Australians have been saving less and spending more, in other words.
However, given the recent weakness in retail sales, there’s evidence building that suggests that too may be coming to an end.
We’ll find out more when Australia’s Q3 GDP report is released in early December.