Australian retail sales recover

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  • Australian retail sales rebounded modestly in August after holding steady in July, led by an increase in spending in discretionary areas.
  • Annual growth for both total and non-food sales currently sits at the highest level in over a year.
  • There was some evidence that weaker home prices may be weighing on demand for household goods. Clothing sales were also strong after falling heavily in July, indicating that weather may have been a factor.

Australian retail sales rose modestly in August, scuppering any near-term concerns about a spending slowdown on the back of falling home prices.

According to the Australian Bureau of Statistics (ABS), sales increased by 0.3% to $26.87 billion in seasonally adjusted terms, a result that was in line with market expectations.

The modest lift followed an unchanged reading in July.

Thanks to a low base effect created by a 0.6% decline in August 2017, the monthly increase saw annual growth in sales lift to 3.8%, the fastest increase since May 2017.

That was up from 2.9% in the year to July, and well above the recent cyclical low of 1.5% seen in September last year.

Impressively, the rebound in spending last month was led by discretionary areas, helping to offset a weak result from food sales.

“There were rises in five of the six industries,” said Ben James, Director of Quarterly Economy Wide Surveys at the ABS.

“Cafes, restaurants and takeaway food services (0.7%) led the rises. Gains were also seen in clothing, footwear and personal accessory retailing (0.8%), other retailing (0.4%), department stores (0.9%) and household goods retailing (0.2%).

“Food retailing was relatively unchanged.”

Non-food sales, seen by many as a measure of discretionary spending, increased by 0.5% over the month, and by 3.4% over the year.

The latter was the fastest increase since June last year.

Sales in non-food categories had fallen 0.2% in July, leaving the increase from 12 months earlier at 2.1%.

While year-ended growth for total and non-food sales lifted by the most in over a year, nearer-term, sales increased by 4.3% and 2.9% respectively on a three-month annualised basis.

Mirroring the performance by category in August, sales also increased in a majority of states and territories, including in New South Wales and Victoria, those areas where property prices have fallen the fastest in recent months.

“In seasonally adjusted terms, there were rises in New South Wales (0.5%), Victoria (0.2%), South Australia (0.8%), Queensland (0.1%), Tasmania (0.6%) and the Australian Capital Territory (0.2%),” James said.

“Western Australia was relatively unchanged (0.0%) whilst there was a fall in the Northern Territory (-1.3%).”

Looking through the details of the report, Paul Dales, Chief Australia and New Zealand Economist at Capital Economics, said a cold snap during the month, following an unusually warm July, may have contributed to the rebound in clothing and department store sales.

“The improvement in August was widespread across the sector, but in particular the 0.8% and 0.9% respective rises in clothing and department store sales reversed some of the 2.1% and 1.8% falls in July that were probably due to the unusually hot weather,” he said.

And while the headline sales figure suggests the impact of falling home prices in many parts of the country has yet to deter Australians spending at the shops, bucking the recent trend in new car sales data, Dales says there is some evidence the recent downturn is impacting spending on household goods.

“The 0.2% rebound in household goods, after a 1.3% fall in July, was a bit disappointing and suggests that the weak housing market is restraining retail sales a bit,” he said.

Still, even if that’s leading to a slowdown in spending on household items, Dales says that after a strong rebound in consumer spending in the the three months to June, today’s report bodes well for consumption in the September quarter.

“It may still be the case that real consumption in the third quarter was only a touch weaker than the second quarter’s 0.7% gain,” he says.

“Households are therefore still proving very resilient to subdued income growth and falling house prices.”

The resilience in spending, despite low household savings levels, weak wage growth and falling property values, likely reflects strong employment growth seen over the past year, helping to boost broader household incomes.

However, despite those positives for spending, Dales remains cautious about the outlook.

“We’re not convinced this will last, especially with petrol prices now shooting up again,” he says.

“We suspect that annual real consumption growth will slow from just below 3.0% this year to about 2.0% next year.”

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