Australian retail sales comes in weak

Spencer Platt/Getty Images
  • Australian retail sales rose marginally in September, rounding off what was a weak quarter for spending at the shops.
  • Food sales grew by 0.4% during the month. Without that increase, sales would have been flat.
  • Retail sales volumes grew by just 0.2% in the September quarter, and will add very little to Q3 GDP growth.

Australian retail sales rose marginally in September, rounding off what was a weak quarter for spending at the shops.

According to the Australian Bureau of Statistics (ABS), sales rose by 0.2% to $26.893 billion after seasonal adjustments, undershooting expectations for a larger increase of 0.3%.

Sales previously grew by 0.3% in August, the same level as the original estimate.

From a year earlier, spending increased by 3.7%, the same pace seen in the 12 months to August.

Spending on food and eating out drove the increase in September, offsetting flat to lower outcomes in all other categories.

“Food retailing (0.4%) led the rises,” said Ben James, Director of Quarterly Economy Wide Surveys at the ABS. “There was also a rise in cafés, restaurants and takeaways, which rose 0.5%.”

“The rises were offset by a fall in clothing, footwear and personal accessories (-1.2%), while three industries — other retailing, household goods and department stores — were relatively unchanged.”

Excluding food sales, turnover was flat, leaving the increase on 12 months earlier at 3.4%, the fastest increase since June last year.

Many deem this figure to be a better indicator on discretionary spending patterns across the country.

As was the case with spending by category, sales across the nation were also mixed, rising strongly in some locations while falling heavily in others.

“There were rises in Victoria (0.7%), Queensland (0.4%), South Australia (0.4%) and Tasmania (0.7%),” James said.

“There were falls in New South Wales (0.4%) and the Northern Territory (1.0%), while Western Australia and the Australian Capital Territory were relatively unchanged.”

The mixed national performance offers few clues as to whether the housing market downturn, and the impact of soaring petrol prices, is affecting overall spending levels at present, particularly in New South Wales and Victoria, Australia’s most populous states.

The housing market is clearly weighing on spending on household goods; although, from a broader perspective, it’s hard to explain why sales surged in Victoria but fell in New South Wales given households in both states were influenced by similar circumstances during the month.

They both have positives such as firm labour market conditions and strong population growth, offset by falling property prices and higher petrol costs.

“We will be watching closely for a decent lift next quarter, otherwise it may be a signal that negative wealth effects from falling dwelling prices are weighing on consumer spending,” said Kristina Clifton, Senior Economist at the Commonwealth Bank. “We think it is too early to make that conclusion yet though.”

Despite creating more questions than answers on the impact of a declining wealth effect, Paul Dales of Capital Economics says there was enough in the latest report to suggest that households are “starting to feel the pinch”.

“With the full effects of falling house prices yet to be felt, we think spending will slow further next year,” he said.

Mirroring the soft nominal spending figures in the past three months, retail sales volumes — which remove the impact of price movements — rose by 0.2% over the September quarter in seasonally adjusted terms, also missing forecasts for a larger gain of 0.4%.

Real sales increased by 2.2% and 1.2% for other retailing and in cafes, restaurants and takeaway food outlets, offsetting declines ranging from 0.6% to 0.8% across all other categories except food which was unchanged from the June quarter.

By state and territory, sales volumes rose by 0.3% in New South Wales and by 0.7% in Victoria. Elsewhere, they increased by 1% in Tasmania, 0.5% in Queensland and 0.2% in South Australia. Volumes fell 0.3%, 1.2% and 3.1% in the ACT, Western Australia and the Northern Territory.

Over the year, total retail sales volumes grew by 2.2%, indicating a marginal improvement in per capita sales given Australia’s population is growing around 1.6% per annum.

The headline increase in volumes during the quarter will marginally boost household consumption expenditure in Australia’s upcoming GDP report, although not by as much as had been anticipated.

“The subdued increase in real retail sales suggests that spending on goods may have stagnated in Q3,” Dales said. “What’s more, a slump in vehicle sales may have shaved off 0.1 percentage points from quarterly consumption growth.”

Retail sales volumes grew by 1% in the June quarter, contributing to the spending-led surge seen in Q2 GDP.

Unless spending on services was strong during the September quarter — a much larger component of household consumption — then a similar result in the next set of national accounts is unlikely.

Dales says spending on services was likely stronger than at the shops, although not by enough to prevent a slowdown in household consumption expenditure over the quarter.

“Services consumption probably remained strong. All told, we’ve pencilled in 0.5% rise in private consumption in Q3,” he says. “That would be slower than the 0.7% rise in Q2 and would mean that the annual increase slowed a little.”

However, given the view falling home prices will likely drag on spending in the period ahead, Dales says household consumption will probably slow next year.

“We think that slowdown has further to run,” he says.

“Our forecast remains that the slump in house prices combined with weak income growth means that consumption growth may weaken from 2.9% this year to 2.0% in 2019.”

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.