Australian retail sales are making a comeback

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  • Australian retail sales grew by 0.4% in May, ahead of expectations for an increase of 0.3%. Growth in April was also revised from 0.4% to 0.5%.
  • Sales were driven by stronger spending on clothing and in department stores, reflecting cooler weather conditions after an unusually warm April.
  • Capital Economics believes the report points to a solid rebound in household consumption in the June quarter following weakness earlier in the year.

For the first time in a long time, Australian retail sales have beaten expectations for two months in row.

According to the Australian Bureau of Statistics (ABS), sales rose by 0.4% to $26.67 billion after seasonal adjustments, topping forecasts for an increase of 0.3%.

April’s increase, originally reported at 0.4%, was also revised higher to show a gain of 0.5%.

The ABS said that colder weather helped to boost clothing sales, reversing a decline in April that was caused by warmer-than-usual temperatures across many parts of the country.

“Department stores (3.9%) led the rises,” said Ben James, director of Quarterly Economy Wide Surveys at the ABS.

“There was also a strong result in clothing, footwear and personal accessories, which rose 2.2%. Both industries were able to rebound after unusually warm weather impacted April sales.”

Spending on food and household goods also increased, lifting 0.3% and 0.1% respectively, offsetting a decline of 1.0% in spending at cafes, restaurants and takeaway food outlets.

Even though the data is seasonally adjusted, the decline in the latter may reflect the shock many Australians felt as winter moved in.

Spending at “other” retailers also fell by 0.1% during the month.

Excluding food sales, and providing a better overall indication on discretionary spending patterns, turnover increased by 0.4% following a 0.6% gain in April.

Suggesting that recent declines in Australian home prices have, as yet, not had a material impact on spending levels, the ABS said sales increased in all states and territories except for Western Australia and the ACT over the month.

There were rises in New South Wales (0.5%), Queensland (0.4%), South Australia (1.1%), Victoria (0.2%), Tasmania (1.5%) and the Northern Territory (0.4%),” it said.

“Western Australia, on the other hand, fell (-0.5%) whilst spending in the Australian Capital Territory was relatively unchanged.”

Despite the broad-based strength, and the back-to-back monthly beats in national sales, annual growth in sales still slowed, falling to 2.5% from 2.7% in the 12 months to April.

Annual growth in sales ex-food was even weaker, tumbling to just 1.7% from 2.1% in April, the weakest result since October 2017.

As a measure of discretionary spending, annual growth in sales ex-food continues to sit well below the levels seen in prior years, largely reflecting weak wages growth since the turn of the decade.

However, despite the softness in both headline and ex-food spending over the past year, Paul Dales, chief Australia and New Zealand economist at Capital Economics, describes the recent trends as “encouraging”.

“The rise in retail sales is nothing to shout about, especially since it was partly due to a rebound in clothing and department store sales. Both of those were largely due to the weather returning to seasonal norms after the unusually hot April meant people didn’t buy many coats and jumpers,” he said.

“[However], the falls in those items in April means the 0.5% gain in total sales in April is encouraging.”

More importantly, especially to the RBA who describe household consumption as “one continuing source of uncertainty”, Dales says the back-to-back retail beats suggest the slowdown in consumer spending earlier this year is unlikely to be repeated in the June quarter.

“After rising by just 0.3% in the first quarter, real consumption may have risen by up to 0.7% in the second quarter,” he says.

As the largest part of the Australian economy, such a result would be welcomed by the RBA board.

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