The latest retail sales figures underline the ongoing risks to the Australian economy from a lacklustre consumer, with spending data for May showing shoppers remain relatively cautious as house prices soften and wages remain stubbornly stagnant.
The data showed retail sales rose 0.4 per cent on a seasonally-adjusted basis in May, which was lower than the upwardly-revised 0.5 per cent increase recorded in April but exceeded the 0.3 per cent advance that economists had been expecting,
The slightly stronger-than-expected reading for May will likely do little to change the outlook for interest rates, with the Reserve Bank of Australia expected to be on hold for another year according to the median economist surveyed by The Australian Financial Review in June, as the central bank works to balance an indebted consumer with an economy that grew at a better-than-expected clip in the March quarter.
“The overall picture remains the same – households still face considerable headwinds from weak wage growth and more recently a sharp slowing in employment growth, which is limiting their capacity to increase their spending,” said Sarah Hunter at BIS Oxford Economics, while describing May’s retail sales growth as “subdued.”
Department sales lead
Digging into the data and “department stores led the rises,” in May said ABS director Ben James. There was also a strong result in clothing, footwear and personal accessories, he said.
Food and household goods sales also rose over the month, by 0.3 per cent and 0.1 per cent. On the downside, takeaway food outlet sales fell and other retailing also showed a decline, the ABS data showed.
New South Wales led spending by state, with sales up 0.5 per cent. Western Australia was the worst performer with a 0.5 per cent decline on a seasonally-adjusted basis.
“The overall rise in retail sales is nothing to shout about, especially since it was partly due to a 2.2 per cent month-on-month rebound in clothing sales and a 3.9 per cent month-on-month bounceback in department store sales,” said Paul Dales at Capital Economics.
“Both of those were largely due to the weather returning to seasonal norms after the unusually hot April meant people didn’t buy many coats and jumpers.”
Annual sales downtrend
Taking a broader view, and AMP Capital economist Diana Mousina noted that the May sales data fed into an annual rise of 2.4 per cent, with the data series on a downtrend since 2014-15.
“Retail spending is far from strong across Australia” she commented. ”We maintain a cautious view on the outlook for consumers in Australia because wages growth is still poor and household wealth is being squeezed by declines across home prices.”
CoreLogic data out on Monday showed Sydney prices fell 4.5 per cent fall over fiscal 2018 for the biggest annual decline since March 2009, with prices down 0.8 per cent nationally over the year.
“The constrained consumer outlook is a big risk for the Australian growth story over the next year and will keep the Reserve Bank cautious in normalising interest rates,” Ms Mousina asserted.
Trade data released at the same time as the retail sales data showed a surplus of $1.1 billion in May on a trend basis and $827 million on a seasonally-adjusted basis. That compared positively to April’s $973 million trend reading and $472 million seasonally-adjusted figure.
“The $827 million trade surplus in May was disappointing relative to the consensus call of $1.2 billion. But it’s still a decent result,” Commonwealth Bank’s Gareth Aird said.
“It’s always preferable to see the trade balance improve via a lift in exports rather than a decline in imports. And today’s result marked the sixth consecutive surplus in 2018.”
The Australian dollar climbed after the data releases, rising to US74.05¢ from US73.95¢.
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