Retail disappoints despite green shoots
Retail spending continues to underwhelm even as the sector shows green shoots of recovery following lower borrowing costs and government tax offsets.
Total seasonally adjusted retail spending rose 0.4 per cent to $27.55 billion for the month, according to Australian Bureau of Statistics data released on Friday, led by a 1.8 per cent rise in clothing, footwear and personal accessory retailing, and a 1.1 per cent rise for department stores.
But the rebound from a flat July result missed consensus forecasts of a 0.5 per cent rise, with economists yet to be convinced recent stimulus measures have been enough to boost the nation’s flagging economy.
“As it stands, the 0.4 per cent gain suggests the ‘cash splash’ is barely a trickle so far,” Westpac economist Matthew Hassan said.
The Reserve Bank cut the cash rate to a new record low 0.75 per cent on Tuesday after its previous two attempts to lower the cost of borrowing in June and July appeared to yield nought but an increase in property prices.
A 0.1 per cent retail decline in July was upwardly revised on Friday to reflect a flat result, following on from a June increase blighted by a disappointing result for quarterly volumes.
Callam Pickering, APAC economist from jobs site Indeed, said the response to the tax and interest rate cuts was far from encouraging.
“Tax cuts and the decline in mortgage rates were expected to provide a brief sugar hit for the household sector… That occurred to some degree in August but growth of 0.4 per cent is hardly worth crowing about,” Mr Pickering said.
“Spending on discretionary items, such as household goods, remains quite weak reflecting tight budgets and cautious households.”
All states except Western Australia and the Northern Territory recorded a retail rebound in August, with Queensland and South Australia recording the biggest lift, rising 0.8 per cent and 0.6 per cent respectively.
Retail spending in New South Wales and Victoria each rose by 0.3 per cent.
Mr Hassan said it was a disappointing overall result that suggested stimulus cash had not been deployed, or underlying conditions may be weaker than estimated.
“Either way it marks a softer than expected trajectory for the consumer so far in Q3,” Mr Hassan said.
The figures came as RBA Assistant Governor Luci Ellis identified heightened retail competition as having “profound” impact on pricing models for inflation, following the arrival of online retailers such as Amazon in Australia.
“After a long period where retail prices tended to rise at roughly the same rate as inflation generally, for the past decade or so, these prices have been flat to falling,” Ms Ellis said in a speech in Geelong.
NAB’s Kaixin Owyong said while a welcome return to growth, Friday’s weaker-than-expected figures suggested considerable headwinds were in effect.
“For the RBA, these data confirm anecdotes from retailers that suggested ongoing softness and suggests further stimulus is required to get consumer spending to lift,” Ms Owyong said.
NAB said it continues to expect the next 25bp cash rate cut to 0.5 per cent to occur in December.
The market has almost fully priced in a fourth cut for 2019 by the end of the year.
Further evidence of economic weakness presented itself as new car sales declined for an 18th consecutive month.
The number of vehicles sold across Australia last month was 6.9 per cent lower compared to September 2018, per data released by the Federal Chamber of Automotive Industries on Thursday.
The Australian dollar fell from 67.55 US cents to 67.49 US cents immediately after the release of the data, and was worth 67.54 at 1348 AEST.
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