Australia’s retail sales report for July has just been released, and they’ve missed badly to the downside.

Sales declined by 0.1%, missing the median market forecast for an increase of 0.4%. In June sales increased by 0.6%, revised down from 0.7% reported previously.

It was the largest monthly decline in percentage terms since May 2014, and left the annual increase after seasonal adjustments at 4.2%, the lowest level since April.

According to the ABS sales increased in clothing, footwear and personal accessory retailing (+2.9%), department stores (+1.3%) and cafes, restaurants and takeaway food services (+0.3%). Food retailing (0.0%) was relatively unchanged. There were falls in household goods retailing (-1.9%) and other retailing (-0.6%) following rises in both industries in June.

From a state and territories perspective, gains were recorded in Queensland (+0.3%), Western Australia (+0.3%) and the Northern Territory (+0.1%) while those in New South Wales (-0.2%), Victoria (-0.2%), South Australia (-0.8%) and the ACT (-0.2%) fell. Sales in Tasmania were flat.

So what to make of the disappointing July result, particularly after the robust Australian performance of services index reading earlier today which revealed sales across Australia’s services sector accelerated at the fastest pace seen since 2003 in August.

Given the breakdown of the report, it appears that there was some partial “payback” for the relatively strong reading in June.

After jumping solidly previously, sales in New South Wales and Victoria – the most populous states in Australia – went backwards in July, recording declines of 0.2% apiece. Household goods retailing, having surged by 2.4% in June, was also softer, dropping 1.9% in July.

Clearly, those states and sectors that outperformed in June were among the weakest performers in July, lending to the idea that some spending may have been brought forward before the financial year end as a result of small business tax concessions announced in May’s federal budget.

In isolation the report is weak, but overall the trend remains unchanged – sales are growing modestly, but at a pace significantly lower than what was the case prior the onset of the global financial crisis.

As the chart below reveals, sales have increased moderately across the nation over the past 12 months, with those states and territories on the eastern seaboard – home to the strongest housing markets – generally above the national avarege.

The initial reaction to the data has been underwhelming to say the least, with ANZ economists Katie Hill and Felicity Emmett suggesting that the sharp reversal from June to July points to the likelihood that spending was brought forward in June due to the federal budget.

“Weak July retail sales suggest that the solid rise in June sales was a bring-forward of demand in response to the small business package in the Commonwealth Budget”, they note.

They also attempt to reconcile the divergent performance between recent business surveys and actual retail spending.

“The trend in retail sales in recent months now looks a lot softer, running around 0.3% per month. While this is surprising given better industry anecdotes and signals from business surveys, it may suggest that weak household income growth and lacklustre consumer confidence is weighing even more on spending than we had previously thought”.

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