Australian retail sales slowed to a 0.1% rise in September (vs 0.2% forecast) following a strong gain in August (0.7%). This slowing suggests warm late winter weather supported spending in August rather than the Stage 3 tax cuts or cost-of-living support measures. The August result drove retail sales to a 1% rise across Q3, the strongest quarterly rise since late 2022.
Growth in underlying retail sales volumes slightly outperformed expectations advancing by 0.5% in Q3 (vs 0.4%) - only the second quarterly increase of the past 2 years - rebounding from a 0.7% decline over the first half of 2024. Nonetheless, retail demand is weak. Growth in headline volumes is just 0.2% over the year, but volumes have contracted sharply by 1.9% in per capita (or population-adjusted) terms. Weakness in demand is taking pricing power away from retailers; growth in retail prices paid by consumers softened to a 0.6% increase in Q3, down from 1% in Q2, with the annual pace of 2.5% now a fraction of the peaks north of 7% seen in the back half of 2022.
Discretionary-related categories drove the lift in quarterly volumes, rising by 0.9% on a headline ex-food basis. Within this, clothing and footwear (1.9%) and department stores (1.4%) posted the strongest gains, the former seeing its best outturn in more than 2 years. Household goods and 'other' retailing both advanced by 1%. Weakness in Q3 centred in basic food (-0.3%), with dining out also softer (-0.2%) and down sharply through the year (-2.6%).
Sentiment indicators recently have suggested that the gloom households have felt over the past couple of years is starting to ease. Inflation is coming down - helped by rebates (see here) - the Stage 3 tax cuts are now in play and the labour market remains strong. Based on today's result for retail volumes, consumer demand looks to have remained tepid in Q3; however, these factors set up a more encouraging dynamic into year-end.
