Slowest retail spending in 28 years: CommSec's Craig James

EXPERT OBSERVER 

There are significant dangers in making generalisations on consumer spending. Sales of shoes and chemist items are solid. But the home building slowdown is weighing on sales of hardware and garden items while Aussie families are still cutting back on newspapers and books. Prices are rising sharply at food stores with the drought a key influence. But prices of shoes and electrical items are still cheaper than a year ago.

Overall, sales of retail goods continue to slow. One reason is higher retail inflation – the highest in a decade. But there is also the ongoing switch to services like health, education and tourism. Aussies still enjoy going out to cafes and restaurants. Meanwhile Aussie consumers outlay more on insurance, utilities and housing.

For the full 2018/19 year, Aussies spent 3 per cent more at retail outlets. They bought 1.3 per cent more goods and services while prices rose by 1.8 per cent over the year.

Are Aussie families living more simply? Perhaps. But it may also be the case that the significant uncertainty about the May election caused consumers to make a key tactical retreat. The encouraging 0.4 per cent lift in June spending may signify the return of the Aussie consumer.

Retail trade – June

Retail trade rose by 0.4 per cent in June after a 0.1 per cent increase in May. Annual growth rose from 2.4 per cent to 2.5 per cent. Non-food retailing rose by 0.5 per cent in June, and annual growth lifted from 1.8 per cent to 2.2 per cent.

Sales by chain-store retailers and other large retailers rose by 0.7 per cent in June after a 0.1 per cent increase in May to stand 3.9 per cent higher over the year.

Spending rose most in June in Clothing retailing (up 2.0 per cent); Footwear (up 1.9 per cent); Newspaper and book retailing (up 1.8 per cent) and Takeaway food (up 1.6 per cent). Nine of 15 retail categories rose in June.

Spending fell the most for Specialised food – butchers, bakers, fruit etc. (down 3.8 per cent) and Department stores and Hardware, building and garden supplies (both down 0.6 per cent).

Across states/territories: NSW (up 0.3 per cent); Victoria (up 0.3 per cent); Queensland (up 0.4 per cent); South Australia (down 0.3 per cent); Western Australia (up 0.8 per cent), Tasmania (up 1.5 per cent); Northern Territory (down 0.2 per cent); ACT (up 0.3 per cent).

Retail trade – June quarter

In real (inflation-adjusted) terms, retail trade rose by 0.2 per cent in the June quarter after a 0.1 per cent fall in the March quarter. Annual growth slowed to 0.2 per cent – the slowest since June quarter 1991 (28 years).

Eleven of the 15 retail categories showed growth in the June quarter.

Strongest gains were by Footwear & Other Personal Accessory (up 1.5 per cent) from Department stores and Electrical, Electronic & Gas Goods (both up 1.4 per cent).

Biggest falls were by Hardware, Building & Garden Supplies (down 1.9 per cent), Newspapers and Books (down 1.7 per cent); and Supermarkets and Grocery Stores (down 0.6 per cent).

Prices across retailers rose by 0.4 per cent in the June quarter after a 0.8 per cent rise in the March quarter. Annual growth of retail prices lifted from 2.0 per cent to a decade high of 2.4 per cent.

Prices rose most in the June quarter in Pharmaceutical Cosmetic and Toiletry (up 1.3 per cent); Hardware, Building & Garden Supplies and Newspapers and Books (both up 1.0 per cent).

In the June quarter there was still deflation in Electrical, Electronic & Gas Goods (prices down 1.2 per cent); Footwear & Other Personal Accessory (down 0.6 per cent); and Furniture, Floorcovering and Textile Goods (down 0.1 per cent).

What are the implications for interest rates and investors?

The Reserve Bank would do well to hold fire on future rate cuts until it assesses more evidence. The latest data shows higher prices and higher spending at a retail level. We do know that home prices are stabilising and that the sharemarket is only slightly down from record levels after reaching new peaks on Tuesday. There are also signs that employers are hiring again.

David Jones believes retailing is in recession. The timing of the comments wasn’t good – real department store sales rose by a solid 1.4 per cent in the June quarter.

The 0.7 per cent real decline in spending at Supermarkets & grocery stores is remarkable. Cafes & restaurants and takeaway outlets are doing better. Also of note, Marley Spoon has just released solid results.

CRAIG JAMES is the Chief Economist at CommSec