Australian retail sales rebound

Will Russell/AFL Media/Getty Images

Australian retail sales rose strongly in October, recovering after a soft patch in the September quarter.

According to the Australian Bureau of Statistics (ABS), sales rose by 0.5% to $26.05 billion in seasonally adjusted terms, topping expectations for an increase of 0.3%.

September’s retail sales result, originally reported as flat, was also revised higher to show an increase of 0.1%.

The monthly increase was the largest in percentage terms since May and saw annual growth rebound to 1.8% from 1.5% in September.

Still, as seen in the chart below, the trend in annual sales growth remains lower, and well off the highs seen in previous years.

“In seasonally adjusted terms, there were rises across all industries led by cafes, restaurants and takeaway food services [which increased by 1.7%],” said Ben James, Director of the Quarterly Economy Wide Survey.

“There were also rises for food retailing (0.3%), clothing, footwear and personal accessory retailing (1.0%), other retailing (0.3%), department stores (0.5%) and household goods retailing (0.1%).”

Like the performance by category, sales also increased in every Australian state and territory, suggesting that the recovery in October was broad based in nature.

There were rises in Victoria (1.0%), New South Wales (0.3%), South Australia (1.2%), Western Australia (0.5%), Queensland (0.1%), the Northern Territory (1.7%), the Australian Capital Territory (0.6%) and Tasmania (0.5%), the ABS said.

In trend terms, the ABS said sales fell by 0.1%, a decline on the flat outcome reported in September.

From a year earlier, sales increased by 1.8% in trend terms, an outcome that suggests per capita sales were close to flat over that period given strong levels of population growth.

That partially reflects slower spending growth at retailers due to higher energy costs and weak wage pressures, along with outright price declines at some retailers given intense levels of competition.

“Tight household budgets due to low wage growth and high debt is one half of the equation. Discounts and lower margins for retailers are the other half,” said Callam Pickering, APAC economist for global job site Indeed.

“With Amazon arriving on the scene we could very well see further discounts in coming months as competition intensifies. Good for households but concerning for retailers.”

While nominal retail sales remain weak compared to prior years, something Pickering says will likely see the Reserve Bank of Australia keep interest rates unchanged as long as it persists, he believes there’s reason for optimism given ongoing strength in Australian employment growth.

“Employment growth has been strong throughout 2017 and that normally leads to stronger consumption growth,” he says.

“Improved business conditions should, in time, lead to an improvement in wage growth. And finally retailers themselves appear to be optimistic for the Christmas shopping season, with job postings for Christmas work well above last year.”

Following the release of the report, the Australian dollar rose by 0.4% to .7630 while Australian government 3-year bond futures were sold off by around 2.5 basis points, indicating that traders think it will help to alleviate concerns surrounding the current health of household balance sheets.

However, further evidence will be required to determine whether October’s bounce will mark a turning point for the sector, especially with other lead indicators continuing to point to stuttering activity levels at retailers.

As the saying goes, one swallow does not a summer make.

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