Retailers and Westpac discount better-than-expected retail figures
Ahead of the Reserve Bank of Australia's September 6 monetary policy meeting, both Westpac and the Australian Retailers Association have downplayed the release of positive retail figures and a bump up in capital expenditure.
ABS figures retail sales for July were stronger than expected, with a 0.5% gain on the back of higher turnover for food retailers, cafes, restaurants and department stores, although clothing retailers were still struggling (down 4.2%) For the last 12 months, retail spending is up 1.4%.
Capital expenditure for the second quarter rose by 4.9% as a result of a sharp increase in mining sector investment. Manufacturing investment also moving up but service sector spending declined.
Westpac is the only major bank to consistently forecast a rate cut before the end of the year.
The bank’s senior economist Matthew Hassan called the spending picture “still very subdued” despite the “surprise” retailing result in July and notes the small 1.4% growth over the year, which he says implies a slight contraction in per capita spending.
“The July rise is also very unlikely to mark the beginning of a consumer revival. Instead, we continue to expect the slump in consumer sentiment in recent months to play through to a material weakening in demand.
“And there are still significant downside risks to the outlook, particularly stemming from consumer concerns about job security and the performance of housing markets near term, and further out, from actual job losses,” Hassan says.
The Commonwealth Bank is sticking with its prediction of the next interest rate movement being up and expects the next rate rise to come in February.
Senior CBA economist John Peters says while the higher-than-expected July retail outcome would not “scuttle current market speculation that aggressive RBA policy easing is going to occur over the next twelve months” the strong capex data “may create some doubts in the markets’ psyche about the inevitability of multiple RBA rate cuts in the next year”.
“The bottom line of the retail and capex data is that we remain very comfortable with our long held view that the next RBA policy move will be a rate hike. However, we expect the RBA to remain on hold for some months yet until the domestic and international pictures become less murky,” he says.
The Australian Retailers Association called the 0.5% growth in retailing in July a “dismal result” and urged the RBA to “take the only reasonable course of action next Tuesday and lower interest rates”.
ARA executive director Russell Zimmerman noted the big year-on-year drops in discretionary spending on clothing and footwear (- 7.5%), department stores (- 2.2%) and household goods (- 0.3%).
These figures, he says, “reflect a continuation of the consumer confidence spiral, with households saving rather than spending and struggling to come to terms with the soaring cost of living.”
“Looking ahead to the spring season, retailers aren’t expecting a break, but rather a continuation of over 18 months of dismal trading conditions.
“A weakening global economy is sending vibrations through the supply chain, affecting other industries such as manufacturing before filtering down to retail.” Zimmerman says.