Australian retail sales stall

Photo by Matt Cardy/Getty Images

Australia’s golden run of retail sales growth has come to an end.

According to the Australian Bureau of Statistics (ABS), sales came in flat during July in seasonally adjusted terms, missing forecasts for an increase of 0.2%.

It was the weakest result since March when Cyclone Debbie caused widespread damage and disruption to southeast Queensland and northern New South Wales.

Excluding food, the largest category by total dollar spend, sales slid by a larger 0.5%. June’s result, initially reported as an increase of 0.3%, was also revised down to 0.2%.

The weakness was led by sales in department stores which slumped by 2.8%, while sales of household goods and clothing, footwear and accessories slid by 1.7% and 0.2% respectively.

The large decline in household goods followed strong gains in the June quarter that were supported by households replacing items damaged during Cyclone Debbie and the subsequent flooding that followed.

Those declines were offset by higher spending on food, eating out and sales of “other” goods which increased by 0.7%, 0.2% and 1.3% respectively.

Over the year, spending increased in all categories except department stores where they fell 0.7%.

By state and territory, the ABS said sales increased in Victoria (0.4%), Western Australia (0.6%), Queensland (0.2%) and the ACT (0.1%), offsetting weakness in New South Wales, South Australia, Tasmania and the Northern Territory of 0.4%, 0.8%, 0.9% and 0.1% respectively.

As a result of the flat sales result in July, annual growth in sales slowed to 3.6%, down from 3.7% in June. Excluding food, a better overall indication for spending on discretionary items, sales grew by a slower 3.4%, pulling back from the 3.9% increase reported in the year to May.

While the soft July report was undoubtedly driven by some payback following strong gains at the start of the June quarter, Paul Dales, chief Australia and New Zealand economist at Capital Economics, said the weakness also reflected a slowdown in Australia’s housing market in the past few months.

“The slowdown in activity in the housing market in recent months is playing a part, with spending on household goods falling by 1.7% in July,” he said following the release of the report.

“Within that, sales of furniture and other housewares items dropped by 3.5%.”

From a broader perspective, Dales said the weakness in July was fairly broad-based, casting doubt as to whether the lift in household consumption seen in Australia’s June quarter GDP report will last.

“This tallies with out view that the acceleration in real consumption growth in the second quarter won’t mark the start of a sustained pick-up when households’ real income are hardly rising at all,” he says.

“Indeed, the weak start to the third quarter suggests that the 0.7% rise in consumption in the second quarter may be followed by a smaller rise in the third quarter, perhaps of around 0.4%.”

It’s only early days, but the risks for September quarter growth already appear to be slanted to the downside.

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