Slow wages growth is hurting Australia's retail sales

Designers Anna Plunkett and Luke Sales pose with models during the Romance Was Born show at Fashion Week last month in Sydney. Brendon Thorne/Getty Images

Retail sales will slow further this year and next as subdued wages growth puts a cap on household spending, according to forecasts by Deloitte Access Economics.

The economists see retail sales growth sliding to 2.5% this year and 1.9% in 2017 from 3.6% over the year to April.

“For some time now, retail sales growth has outpaced lacklustre underlying income growth being supported instead by factors such as interest rate cuts and rising housing wealth,” says Deloitte Access Economics in its latest Retail Forecasts report.

“The strength in retail is being driven by non-food retailing with clothing retailers and department stores the standout sectors in early 2016.”

Deloitte Access Economics says retail sales have been able to outstrip growth in income largely due to the willingness of consumers to run down their savings.

This has been assisted by a house price boom which provided a big boost to housing wealth. And a fall in petrol prices has diverted some income from petrol retailers to other retailers.

“The difficulty now facing retailers is that many of those supports are temporary, so the one-off boosts that supported retail spending are likely to fade,” says Deloitte Access Economics.

“Meanwhile, the challenges to income growth are continuing with wage growth remaining at record lows.”

That is why Deloitte Access Economics sees retail sales growth slowing further, as this chart shows:

Competition is intense with discounting in the March quarter in sectors such as clothing suggesting that profit margins are under pressure.

On a state basis, NSW, Victoria, South Australia, Tasmania and the ACT are outperforming.

Those most exposed to the downturn in the resources sector, Queensland, Western Australia and the Northern Territory, are underperforming the national average, as this chart shows:

Source: Deloitte Access Economics

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