- Australian retail sales fell by 0.1% in April, below the 0.2% increase expected.
- Non-food sales, regarded as a better measure of discretionary spending, fell by a larger 0.2%.
- Steep falls in New South Wales and Victoria drove the national decline, offsetting strength in most other states.
Australian retail sales fell unexpectedly in April, driven by steep falls in New South Wales and Queensland.
According to the Australian Bureau of Statistics (ABS), retail turnover fell 0.1% during the month in seasonally-adjusted terms, a result well below the 0.2% increase expected by financial markets.
It was the first monthly decline in sales since December last year.
Sales rose by 0.3% in March, unchanged from the initial estimate.
“There were mixed results across industries” said Ben Faulkner, director of quarterly economy wide surveys at the ABS.
From a month earlier, sales of household goods, clothing and apparel, and at cafes, restaurant and takeaway food services, went backwards, falling 0.9%, 0.7% and 1.2% respectively.
Those declines were partially offset by increased turnover at other retailers, department stores and food outlets which rose by 0.8%, 1.8% and 0.2% respectively.
Non-food sales, often regarded as a better guide to discretionary spending patterns at retailers, fell by larger 0.2% during the month. They’ve now fallen in three of the past five months.
Food is the largest category by dollar spend in the retail sales report, accounting for 41.2% of turnover in the latest update.
By location, sales tumbled by 0.4% apiece in New South Wales and Victoria, not only Australia’s most populous states but also where home prices fell the fastest over the past year.
“Both the sub-category and state detail point to wealth effect spillovers from the Sydney and Melbourne led housing market corrections weighing on sales,” said Matthew Hassan, Senior Economist at Westpac Bank.
“The April retail update is clearly on the soft side, marking a weak start to the June quarter and with some worrying signs that wealth effect drags may be intensifying.”
Along with New South Wales and Victoria, sales also fell by 0.5% and 0.2% respectively in the Northern Territory and the ACT.
However, keeping with the mixed retail report card, turnover increased by 0.7% in Queensland and 0.6% in South Australia. Smaller gains of 0.3% and 0.1% were reported in Tasmania and Western Australia respectively.
From a year earlier, sales nationally grew by 2.8%, down from 3.5% in the 12 months to March. Non-food sales grew by a slower 1.9% over the same period, down sharply from the 2.8% pace reported in March.
While retail sales have been sluggish for several years, Callam Pickering, APAC economist at global job site Indeed, believes there reason for optimism about the near-term prospects for retailers.
“The near-term outlook for retail is suddenly brighter, with several factors working in its favour,” he said following the release of the April report.
“First, lower interest rates will free up a little cash for millions of Australian households. Anything from two to four rate cuts appears possible over the next year.
“Second, the minimum wage will increase by 3% on 1 July, providing support for low-income earners.
“Third, the federal government’s tax offset will provide an immediate boost to household incomes, although admittedly there is uncertainty surrounding the timing of the full tax offset.”
Combined, Pickering says these factors could provide some “near-term support for the retail sector”.
However, while tax cuts and lowering borrowing costs, combined with Australia’s next minimum wage increase at the start of July, means there’s reason for optimism about the outlook for spending in the months ahead, Pickering says the biggest Achilles heel for a retail recovery remains weakness in broader wage pressures.
“Stronger wage growth remains the key for the retail sector going forward,” Pickering said.
“We anticipate a near-term improvement in retail growth that unfortunately won’t persist into 2020 without further improvement in wage growth.”
For wage growth to accelerate, it will likely require significant progress in lowering not only unemployment but also still-elevated levels of underemployed workers in Australia.
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