Australian retail sales have missed expectations in May, coming in at 0.2%, according to the Australian Bureau of Statistics (ABS).
Markets had been expecting a gain of 0.3%, following a 0.1% increase in April that was initially reported as a gain of 0.2%.
As a result of the underwhelming growth, the annual pace of sales growth slowed to just 3.4%, down from 3.5% in April. In October 2014, the annual growth in sales was as high as 5.7%.
Be it due to weather, intense competition, record-low wage growth or other factors, sale growth, when measured in dollar terms, is continuing to trend lower. There is a distinct lack of price pressures in retail.
After seasonal adjustments, the ABS noted that sales increased in food retailing (0.7%), other retailing (1.4%) and cafes, restaurants and takeaway food services (0.3%).
That was partially offset by declines in household goods retailing (1.1%), formerly an area of strength, and in clothing, footwear and personal accessory sales which skidded 1.2%.
Department store sales were flat.
The chart below looks at the percentage change in sales by individual category, looking back three months and over the past year. Of interest, sales of household goods have stalled in recent months, falling by 0.4% from the levels seen in February. This is in stark contrast to the pattern seen in recent years when sales in this category outperformed all others.
By state and territory, it was a continuation of a familiar theme with New South Wales and Victoria outperforming other parts of the country.
Sales rose in New South Wales (0.7%), Victoria (0.6%) and South Australia (0.3%), mitigating declines in Western Australia (-0.7%), Queensland (-0.4%), the Northern Territory (-0.6%) and the Australian Capital Territory (-0.3%). Sales in Tasmania were flat.
From three months earlier, and indeed over the past year, those states and territories dominated by services — New South Wales, Victoria and Queensland — continued to outperform compared to those more aligned to the fortunes of the mining sector.
While the May retail sales report was a disappointment, it was simply a continuation of the recent theme. That is, momentum in sales growth is continuing to wane, with strength in the non-mining states and territories offset by other parts of the country.
Perhaps of most interest is the sharp deceleration in household goods retailing seen in recent months, seeing sales in the once high-flying sector come back to the chasing pack.
Although sales are higher than the levels of a year ago, the recent moderation provides yet another indication — along with recent home loan data, auction clearance rates and house price growth (outside of Sydney) — that housing market conditions may be cooling.
Though many will welcome a period of consolidation after a solid period of growth, weaker housing market conditions could see households trim back their spending as the wealth effect of previous price increases fade.
With retail sales growth already trending lower, in part due to disinflationary forces placing downward pressure on retail prices, Gareth Aird, senior economist at CBA, believes that the RBA will have to cut rates in the months ahead to help underpin domestic-led growth.
“There is currently a distinct lack of price pressures in the retail sector and this is being both influenced and compounded by soft wages growth,” says Aird. “As a result, retail trade growth has limped along in recent months.”
“There is a growing suite of data, including wages, prices and inflation expectations, that highlight just how muted inflationary pressures are across the economy, including the retail sector.
“In our view, this will force the RBA’s hand, especially given the Fed looks unlikely to raise rates until late this year (at the earliest) and other major central banks are expected to step on the monetary policy accelerator,” he adds.