Here's what economists are saying about Australia's weak retail sales report

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  • Australian retail sales were flat in March, coming in below expectations for an increase of 0.2%.
  • Over the quarter, retail sales volumes grew by 0.2%, an outcome that will marginally add to Australian Q1 GDP.
  • Australia’s federal budget is likely to deliver modest income tax relief to low and middle-income families.

One of the centrepieces of Australia’s federal budget is income tax relief for low and middle-income families, designed, in Treasurer Scott Morrison’s own words, to put more money back in the pockets of Australians to deal with household and family budget pressures.

Based off Australia’s retail sales report for March, that’s sorely needed right now.

According to the Australian Bureau of Statistics (ABS), sales were flat in seasonally adjusted terms, a disappointing outcome after a 0.6% increase in February.

Excluding food sales, and providing a better overall indication on discretionary spending patterns during the month, retail turnover fell by 0.5%, largely unwinding February’s 0.8% increase.

Indeed, all other categories besides food saw sales fall over the month.

The weak result saw quarterly retail sales volumes — eliminating the impact of price movements — grow by just 0.2%, well below the downwardly-revised 0.8% increase in the December quarter last year.

It will only add marginally to Australian economic growth in the first quarter of the year.

Following a year of strong employment and population growth, two factors that should help to underpin retail sales, today’s report has once again cast doubt as to whether Australian families will be be able to support economic growth all that much in the year ahead, especially should home prices in Sydney and Melbourne continue to fall.

Now that they’ve had time to peruse the weak report, it’s time to see what Australia’s economic community have made of this latest setback.

Is it a sign of things to come, continuing the pattern seen in recent years, or are brighter days ahead for retailers, and the broader Australian economy?

Let’s find out.

Kristina Clifton, Commonwealth Bank

Today’s retail trade data was disappointing, coming in lower than expectations for both March nominal trade and Q1 volumes. Despite strong employment growth, retail trade growth is yet to gain traction. We will probably need to see further falls in the underemployment rate and a lift in household income growth before retail trade really starts to lift.

Tonight’s Federal budget is expected to provide tax relief for low and middle income workers through an increase in the low income tax offset. This will boost household incomes and will be a positive for consumer spending.

Retail trade makes up around one third of household spending. The 0.2% lift in retail trade in Q1 will add 0.04 percentage points to Q1 growth. If the other components of consumer spending have grown at a similar rate then this suggests a fairly modest contribution to Q1 GDP from the household sector.

The retail trade deflator (retail inflation) rose 0.4% in Q1. This was the strongest increase since Q4 2015. It follows a 0.3% lift in Q4 2017 and may be signalling that the bulk of the discounting in the retail sector has run its course. Over the year retail prices are up just 0.2% which is well below the economy wide rate of inflation of 1.9%.

Matthew Hassan, Westpac Bank

For Q1 as a whole, basic food retail rebounded 0.7% from a 1.2% fall in Q4. Almost all other store-type categories recorded a weakening quarter to quarter with department store sales volumes stalling flat and cafes and restaurants contracting 0.4%.

The main source of the downside surprise appears to be retail prices which rose 0.4% in the quarter, a strong gain on Q4 despite CPI detail that pointed to a much weaker backdrop.

Overall, the downside surprise for Q1 real retail sales clearly points to downside risks to the wider measures of consumer spending in the March quarter national accounts due out on June 6.

That said, much of the weakness appears to reflect specific challenges facing the retail sector with business surveys suggesting consumer spending on services has been firmer.

Ben Jarman, JP Morgan

The retail volumes number was softer than expected due to the shortfall in the March monthly input. Retail volumes grew only 0.2% over trhe quarter.

The mapping from retail volumes to aggregate household consumption is imperfect, and it is unlikely that consumption overall is this soft. Still, today’s result does trim some of the upside risk to GDP from the trade data of late, and gives the impression that growth is becoming increasingly reliant on the capex and export contributions. The quarterly retail price data similarly maintain the sense that pricing power is low, as suggested by the details of the 1Q CPI report.

Kate Hickie, Capital Economics

The sharper than anticipated easing in real retail sales growth in the first quarter points to a notable slowdown in real consumption growth last quarter. Moreover, the stagnation in nominal retail sales in March suggests there wasn’t any momentum going into the second quarter either.

Today’s release suggests that total real consumption growth slowed from 1.0% in the fourth quarter to about 0.5% in the first. And we expect that consumption growth will remain around this pace for some time yet.

While we won’t know the exact size of the boost until the Federal Budget is released this evening, at this stage it seems the impact will be fairly modest. And the bigger picture remains that with wage growth still low and the housing market continuing to soften, households are likely to remain cautious in the coming quarters.

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