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The impact of low wages and high household debt appear to have taken their toll on Australia's retailers, with a further slowdown in sales in July.
Key points:
- Retail sales stagnated in July with falls in NSW, SA, Tasmania and the Northern Territory
- Trade surplus narrows sharply as key commodity exports slow
- Early readings of Q3 data show the economy may have lost momentum
In seasonally adjusted terms retail sales were stagnant, having eased back from a moribund 0.2 per cent growth in June.
The market wasn't expecting much, but had pencilled in around 0.3 per cent growth into its forecasts.
A number of key sectors —particularly in discretionary retailing — reported shrinking sales.
- Household goods retailing: -1.7 per cent
- Department stores: -2.8 per cent
- Personal accessory retailing: -0.2 per cent
Where growth was reported, it was still fairly weak.
- Food retailing +0.7 per cent
- Other retailing +1.3 per cent
- Cafes, restaurants and takeaway food services +0.2 per cent
The largest falls were recorded in New South Wales (-0.4 per cent), South Australia (-0.8 per cent), Tasmania (-0.9 per cent) and the Northern Territory (-0.1 per cent), while consumers in Queensland and Victoria were prepared to lash out more.
The stronger annual growth of 3.6 per cent has been supported by a spurt in March and April, driven by post-Cyclone Debbie rebuilding.
RBC's Su-Lin Ong says Australian consumers are feeling the pinch and are likely to keep their wallets shut for some time as utility prices rise and squeeze disposable incomes.
"A large increase in utility prices [15-20 per cent] came into effect from 1 July and may have tempered expenditure in the month," Ms Ong said.
"We suspect that the hit to household disposable income from higher electricity and gas prices has yet to fully feed through and we would not be surprised to see further weakness in retail sales ahead."
ANZ's Jo Masters said the weakness in sales was concentrated in small firms, which tend to have a more volatile cycle.
"Softening retail sales is consistent with our view that households will struggle to sustain consumption growth above income growth — particularly given weak wage growth and high levels of household debt — and we continue to see the consumer as a key risk to the economic outlook," Ms Masters said.
Trade surplus halved
Trade figures also softened in July with the trade surplus tumbling to just $460 million, down from $888 million in the previous month.
The market had expected a surplus closer to $1 billion, however weaker than expected shipments of key commodities coal, iron ore and gold dragged exports down 2 per cent — outpacing the 1 per cent fall in imports.
The surplus has narrowed for three consecutive months and is now down about 90 per cent from its peak of $4.6 billion in December last year.
Coal exports fell 2.2 per cent over the month, while iron was down 1.8 per cent — largely due to weaker prices.
Falling prices also drove LNG exports down a surprising 12.4 per cent after several strong months of growth.
Rural goods bucked the trend, up 2 per cent, with particularly strong performances from wool (+26 per cent), although cereal exports were down 13 per cent.
Services exports — in particular tourism — were significant contributors to the surplus.
"Tourism exports rose by 3.4 per cent while imports [money spent by Australian residents offshore] inched up by 0.6 per cent," CBA's Gareth Aird noted.
"As yet, the higher Australian dollar hasn't had a negative impact on the tourism trade balance," he said.
JP Morgan's Ben Jarman said the overall trade retreat may be temporary.
"The export data are likely to pick up again as higher market commodity prices transmit to the official trade receipts, and as LNG capacity picks up further," he said.
Topics: economic-trends, iron-ore, oil-and-gas, trade, retail, australia
First posted