Australian retail sales fell for the second straight month in March, sliding by 0.1% in seasonally-adjusted terms.
Not only did retail sales fall again, they missed the consensus forecast of 0.3% growth by a wide margin.
It marks the third decline in the last four months, with inclement weather in the form of Cyclone Debbie likely contributing to the poor result.
The Australian dollar fell to a 4-month low in the wake of the result, and a short time ago was down 0.41% today to US73.57 cents.
The retail sales report measures changes in nominal spending on retail goods from one month to the next.
Seasonally-adjusted declines were led by a fall in department store spending of -0.6%.
The Australian Bureau of Statistics (ABS) reports that there were also falls in food retailing (-0.5%), restaurants and takeaway food services (-0.5%), and household goods retailing (-0.1%).
That was offset by gains in other retailing (1.1%) and clothing, footwear and personal accessory retailing (0.4%).
Analysts from Capital Economics said that some of the weakness in the March result can possibly be explained by the impact of Cyclone Debbie, which hit Queensland in March and most likely caused disruption to retail spending patterns.
On a state basis, the ABS said the highest falls were in the Northern Territory (-1.8%) and Queensland (-1.3%). There were also falls in South Australia and Tasmania, while other states posted small gains, led by Victoria at 0.4%.
JP Morgan Economist Tom Kennedy said that the results were in line with weaker trends which have prevailed over the past few months.
Looking at today’s monthly data within the context of Q1 2017, Kennedy said that “weakness in the first quarter of the year appears to be more than just a pricing story, with retail volumes growth also coming in well below expectations”.
Kennedy cited quarterly volume growth of 0.1% against the consensus forecast of 0.5%. That’s a noticeable drop from 0.7% growth in the December quarter.
The fall “confirms our sense that the pace of household consumption recorded late last year was facilitated by a sharp drop in the savings rate, and was unsustainable”, Kennedy said.
That ties in with comments last week from Reserve Bank of Australia (RBA) Governor Philip Lowe, who said that high house prices with slower wage growth made the economy more susceptible to reduced household spending.
This chart from JP Morgan shows the recent fall in discretionary spending by Australian consumers:
It’s a view shared by the Capital Economics team, which expects that consumption growth will fall from 2.7% in 2016 to around 2.0% this year.
“Looking ahead, the outright fall in retail sales in February and March and the sustained weakness in consumer confidence over the past few months supports our view that the combination of record low wage growth and high household debt will restrain consumption growth this year,” Capital Economics said.
The RBA in its quarterly Statement on Monetary Policy (SoMP) Friday also pointed to ”heightened competitive pressures” in the retail sector as a key factor for inflation remaining low.
“The arrival of further new foreign retailers will be an important influence on final retail prices over the next few years,” the RBA said
While the RBA is expected by most economist to stay put for the rest of the year, it was inflation, or rather a lack of it, that pushed the central bank to cut interest rates twice to a record low of 1.5% last year.
AMP Chief Economist Shane Oliver said that today’s retail sales result rules out an interest rate increase by the RBA, and increases the likelihood of a rate cut.
Food retailing’s 0.5% fall in March reversed a 0.4% gain in February. The ABS said that declines in food retailing were comprised of sub-category falls in other specialised food retailing (-1.2%) and liquor retailing (-1.0%) while grocery store sales fell by 0.4%.
The 0.1% fall in household good sales was driven by another decline in hardware, building and garden supplies retailing (-0.8%), after that sub-category fell by 2.5% in February.
Within the gains in other retailing of 1.1%, there was a 2.5% increase in pharmaceutical, cosmetic and toiletry goods retailing (2.5%), while other recreational goods retailing rose by 2.7%.
Michael Turner from the Royal Bank of Canada (RBC) said that the bank had revised down it’s Q1 GDP forecast following today’s result.
“According to the ABS, retail spending historically contributes 55-60% of total household consumption, so the scene is set for a weak household spending number in Q1’s national accounts,” Turner said.
Turner said that the weakness already apparent in consumer spending meant that incoming data on consumption warranted further scrutiny.
“We had expected a gradual slowdown over 2017 as a slower housing market and consolidation of household balance sheets helped the savings rate stabilise, leaving spending growth closer to (weak) income growth,” he said.
Analysts from UBS noted that today’s results means that annual retail sales growth fell to just 2%, its lowest level in four years.
Combined with a quarterly fall in car sales of 0.8%, the UBS analysts shared the view that consumption growth will probably be a weaker contributor to Q1 GDP.
However, UBS also noted that “the lack of a consistent quarter-on-quarter relationship between retail volumes & real consumption means the data are too unreliable to make a strong conclusion yet”.
This chart from UBS shows retail sales against real consumption growth, with a predicted value for quarterly consumption growth to March 2017:
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