ON A ROLL: Australian retail beats for a third straight month

(Mark Metcalfe / Getty Images)
  • Australian retail sales beat expectations for the third straight month in June, with a gain of 0.4% in seasonally adjusted terms (0.3% forecast).
  • Quarterly trade volumes were also stronger, rising by 1.2% after a gain of just 0.2% in the three months to March.
  • Economists said the latest results are evidence of some resilience in the Australian consumer, although they don’t expect that to continue in the second half of the year.
  • Westpac’s Matthew Hassan noted that prices pressures in retail remain evident, as quarterly prices fell by 0.1% after Q2 CPI data pointed to a 0.2% gain.

Australian retail sales rose by 0.4% in June in seasonally adjusted terms, beating expectations of a 0.3% gain.

It continues a positive trend for the sector after sales growth also exceeded forecasts in April and May.

Total retail sales for the month (seasonally adjusted) increased to $26.813 billion.

In addition, quarterly trade volumes — a key indicator for the consumption component of GDP — rose by 1.2%, comfortably beating forecasts of a 0.8% gain.

The Australian dollar was little-changed in the immediate wake of the release. A short time ago it was trading just above 0.7360 US cents.

Despite the solid result, annual growth in total nominal retail sales “remains subdued” at 2.9% per year, Westpac economist Matthew Hasan said.

Capital Economics chief economist Paul Dales said the result was evidence that Australian household are “holding up well”.

“Overall, the boost from rising employment appears to be countering any drag on real spending from weak wage growth, rising petrol prices and falling house prices,” Dales said.

Ben James from the ABS said food retailing led the increases in June.

In addition, “clothing, footwear and personal accessories rose 1.7%, following a 2.3% rise in May”.

By sector, the only fall was in department stores, which fell by 1.2% after leading gains in May with a 3.9% increase as colder weather drove more demand for clothing.

Sarah Hunter, head of macroeconomics at BIS Oxford Economics, attributed the volatility in department store sales to the rise of online competitors.

“This segment remains under fire from e-commerce, which is continuing to squeeze prices and retailers’ margins,” Hunter said.

The ABS said online retail contributed 5.7% of total retail turnover, up from 5.6% in the prior month and 4.1% at the same time last year.

It follows reports last month that more than half the growth in Australian retail is now online.

Westpac’s Hassan said the biggest surprise in the June data was around prices.

“The CPI detail had pointed to a modest 0.2% gain in retail prices. Instead they recorded a 0.1% dip, with all store-type categories (except cafes & restaurants) recording a decline,” Hassan said.

Elsewhere, there were rises for cafes, restaurants and takeaways (0.9%). And spending on household goods rose by 0.4%, boosted a 1.3% in purchases of electronics. The “other retailing” category was unchanged.

By state, the biggest rises were in the ACT and Victoria which posted monthly gains of 1.2% and 1.1% respectively, in seasonally adjusted terms.

There were also gains in NSW and WA, while South Australia was little changed. Queensland and the Northern Territory both had small monthly declines.

On the trade volumes side, Hunter said the 1.2% was a positive result, although it’s coming off the back of a “very weak” March quarter where volumes rose by just 0.2%.

JP Morgan rates strategist Ben Jarman said the recent volatility in volumes is still part of a broader downward trend.

“Retail volumes have been choppy quarter to quarter over the last couple of years, but the annual rate is nevertheless slowing as the household sector’s financial constraints start to bind,” Jarman said.

Despite that, he expects the contribution from consumption to June quarter GDP will still be higher than Q1.

Jarman added that nominal retail sales continue to trend lower in annual terms, with more significant declines in discretionary and housing-related groups such as hardware.

“Broadly speaking growth remains very patchy, and given the ongoing weakness in wage and other income growth we expect this to continue through the rest of this year,” Hunter said.

Dales agreed, citing the ongoing housing downturn as evidence that the recent run of retail results is unlikely to continue in the second half of 2018.

“Falling house prices will probably prompt some easing in consumption growth later in the year,” Dales said.

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