Below trend growth to continue
Australian retail sales rose 0.4% in July, a good result that builds on the 0.6% growth in June. We were expecting a stronger gain but it nevertheless reaffirms that the negative impact from the Federal Budget on retail spending in May was temporary.
Australian retail sales rose 0.4% in July (NAB +0.9%, Market +0.4%), a good result that builds on the 0.6% growth in June. We were expecting a stronger gain but it nevertheless reaffirms that the negative impact from the Federal Budget on retail spending in May was temporary. The level of sales in July at $23.3bn is around 0.7% higher than the June quarter average, so it’s a good start to Q3 that hopefully will be improved upon with further monthly gains in coming months.
But while the June and July data are encouraging, overall retail growth so far this year has been very modest. After the solid gains in 2013, retail levels have risen only gradually in 2014, and the July level of sales is only 1% higher than the January level. The annual pace looks solid at 5.8%yoy, but most of that growth came in late 2013. There’s been plenty of focus on confidence levels and consumer confidence may be almost back to pre-Budget levels, but it is still well down compared to a year ago. The uncertain economic outlook and the deteriorating labour market is keeping a lid on household spending activity in 2014.
By sector, food retailing (which represents 40% of retail sales) was solid, up 0.5% again in July, while department stores had a solid 1.9% gain after declines in May and June. Household goods and ‘other’ retailing fell in July. By state, the gains were clearly driven by the biggest states, with NSW up 0.7% and VIC up 0.6%. Rises were also seen in SA (+0.4%) and Queensland (+0.1%), while declines were posted in WA (-0.1%) and Tasmania (-0.4%).
So overall, it’s been a good couple of months for retailing after the very poor run from February to May, but the soft labour market outlook will contain future gains.
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