Australian retail sales accelerated by 0.7% in May posting their strongest rise since the start of the year. Discretionary categories drove the rise in spending amid strong demand for dining out and discounting associated with end-of-financial-year sales. Despite numerous headwinds and weak sentiment, spending by Australian households is displaying resilience.
Headline retail sales lifted by 0.7% in May, with discretionary sales (total sales ex-basic food) rising at a slightly stronger pace of 0.9%. These were the strongest outturns for both categories since January. The ABS identified an early start to end of financial year sales and events such as Mother's Day and Click Frenzy promotions as key factors behind the acceleration in spending in May.
Across the categories, the strongest rises were in restaurants and cafes (1.4%) and other retailing (2.2%), the latter boosted by online sales and spending at florists and for cosmetics and pharmaceuticals. Household goods (0.6%) saw their first rise since January. Weakness in discretionary spending was evident in clothing and footwear (-0.6%) and department stores (-0.5%). Food sales lifted by 0.3%.
As highlighted above, there were several factors supporting retail spending in May, this coming amid the backdrop of a very strong labour market and rapid population growth. Inflationary effects also remain a factor in boosting nominal sales; goods-related inflation in Australia is slowing but the process is taking longer than seen overseas. Overall, declines in sales volumes over the past two quarters (-0.3% in Q4 and -0.6% in Q1) show that retail demand has softened; however, household consumption in services has held up and is appearing resilient.
