Australian retail sales just smashed expectations

Getty/Cole Bennetts

Australia’s retail sales report for May has just been released, and it’s another big beat.

According to the ABS, nominal retail sales jumped by 0.6% in seasonally adjusted terms, topping expectations for an increase of 0.2%.

Putting the result into perspective, it matched the highest individual economist forecast that was offered to Bloomberg. It also followed an enormous 1% surge in April which was the largest monthly increase in over two years.

As a result of the recent spending spree, the year-on-year increase rocketed to 3.82%, the fastest pace since April 2016.

However, as was the case in April, there were signs within the May report that suggest the increase may have been partially driven by temporary, weather-related factors.

The ABS said that sales of household goods (2.2%), clothing, footwear and personal accessories (1.3%), cafes, restaurants and takeaway food (0.6%), other goods (0.6%) and food retailing (0.1%) all increased, partially offset by a sharp decline in department store sales which fell by 0.7%.

The 2.2% surge in spending on household goods was broad-based, said the ABS, led by sales of electrical and electronic goods which jumped by 2.8%.

Sales of furniture, floor coverings, housewares and textile goods also rose by 2%, while those for hardware, building and garden supplies increased by a slightly smaller 1.5%.

Some pretty significant increases in just one month.

Either many Australians went on a renovating spree or they were replacing damaged goods, possibly in response to the cleanup following Cyclone Debbie, and separate flooding events that followed, that impacted northern New South Wales throughout much of April.

By location, and again suggesting that weather may have contributed to the strong headline result, the ABS said that sales in New South Wales jumped by 1.3%, the fastest of any state and territory.

Within that figure, the ABS said sales of households goods surged by 3.7%, the second-largest monthly increase in close to three years.

However, the strength in New South Wales was replicated across most other parts of the country, suggesting that the underlying trend in sales may strengthening after prolonged period of weakness.

The ABS said that sales increased by 1.2% in Victoria and Tasmania, and by 1% in the ACT. South Australia and Western Australia also pitched in with gains of 0.8% and 0.3% respectively.

Those strong results helped to offset a drop in sales in Queensland and the Northern Territory of 1.1% and 0.5%.

The Queensland result partially reversed the strong increase reported in April that many believe was driven by repairs following Cyclone Debbie in late March.

It will be interesting to see whether the same outcome will be seen in New South Wales’ figures when the ABS releases Australia’s June retail sales report in early August.

However, while questions remain as to whether one-off factors have driven retail sales higher over the past two months, it must be remembered that recent economic data, particularly around the labour market, new car sales and tourism, has been pretty strong.

And we also now that Australia’s population is currently growing far quicker than what many previously thought.

These are all factors that would generally support retail sales growth, and with consumer confidence also edging higher, it suggests that perhaps the outlook for retailers is not as bad as many currently expect.

Despite the strong headline result, financial markets have been largely unmoved from the May report.

This may reflect uncertainty as to what exactly drove the increase, or, more likely, caution ahead of this afternoon’s RBA interest rate decision.

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