Australian retail sales were weak again last quarter

Peter Macdiarmid/Getty Images
  • Australian retail sales rose by 0.3% in March following an upwardly-revised 0.9% gain in February. Markets were expecting sales to lift by 0.2% during the month.
  • However, the improvement in recent months largely reflects higher prices, not turnover levels.
  • Real retail sales, measured in volumes, actually went backwards during the quarter and will detract from Q1 GDP. Although small, the decline was the largest since the September quarter 2013.
  • The NAB said the result “bolsters the case for a near-term RBA rate cut”.

Australian retail sales rose modestly in April, although it was not enough to prevent another weak quarter for spending at the shops.

According to the Australian Bureau of Statistics (ABS), sales rose by 0.3% in seasonally adjusted terms, coming in slightly ahead of market expectations for an increase of 0.2%.

February’s increase, initially reported as a gain of 0.8%, was also revised higher to 0.9%.

From a year earlier, sales rose by 3.5%, the fastest increase since October 2018.

The ABS said sales at cafes, restaurants and takeaway food services and food retailers led the increase in March, lifting 1.4% and 0.4% respectively.

Prices increases, rather than volumes, drove the lift in food sales, the largest category by dollar spend.

Elsewhere, sales of clothing, footwear and personal accessories and household goods also increased, lifting by 1.2% and 0.2% respectively, offsetting declines of 1.5% at department stores and a 0.4% decrease at other retailers.

Excluding food sales, turnover rose by 0.3%, leaving the increase from 12 months earlier at 2.9%, also the fastest pace since October 2018. Many regard this as a better indicator of discretionary spending patterns at retailers.

By state and territory, sales rose in all locations except for the ACT and Western Australia during the month.

Victoria and the Northern Territory, at 0.7% apiece, led the gains, closely followed by increases of 0.6% in Queensland and 0.4% in Tasmania. Sales in New South Wales and South Australia grew by 0.2% and 0.1% respectively.

In contrast, turnover in Western Australia went backwards, declining 0.7%, while sales in the ACT were unchanged from a month earlier.

Despite nominal retail sales exceeding market expectations over the past two months, after adjusting for price movements during the March quarter, retail sales volumes actually went backwards, falling 0.05%.

This was well below the 0.3% increase expected and will actually detract slightly from Australian Q1 GDP.

Over the year, real turnover rose by a paltry 1.1%, the slowest increase since the September quarter of 2011.

The weak result, the largest quarterly decline in real terms since the September quarter of 2013, was influenced by the downturn in Australia’s housing market.

“The quarterly fall in volumes was led by household goods retailing at 0.6%, and department stores at 1.2%,” the ABS said.

Those pockets of weakness were partially offset by growth of 1% at cafes, restaurants and takeaway food outlets. Real turnover at other retailers, food retailers and at clothing, footwear and personal accessory stores also increased by 0.3%, 0.1% and 0.3% respectively from the December quarter.

The weak retail report, continuing the trend seen since the middle of last year, adds to risks that broader household spending, the largest part of the Australian economy, remained sluggish in early 2019.

“Unless spending on services provides an unexpectedly strong offset, the data points to another weak quarter of total consumption, most likely below the implied 0.6% average quarterly increases needed to reach the RBA’s forecast of 2.5% annual spending growth over 2019,” said Kaixin Owyong, Economist at the National Australia Bank.

“The data bolsters the case for a near-term rate cut and reinforces our view that the RBA will have to downgrade its outlook for growth given consumer spending makes up around 55% of GDP.”

The RBA will announce its May monetary policy decision at 2.30pm AEST. Both markets and economists deem the prospect of a rate cut — the first since August 2016 — as a line-ball call.

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