Retail Sales — June | By the numbers
- Retail turnover increased by 0.4% in June to $A27.45bn, which was stronger than the 0.3% forecast by markets and a solid improvement from May's outturn of 0.1%.
- Annual turnover growth ticked up from 2.4% to 2.5% on a seasonally adjusted basis, though in trend terms the pace moderated from 2.8% to 2.7%.
- Retail volumes (nominal spending adjusted for price changes) lifted by 0.2% in Q2 to more than offset Q1's 0.1% fall, though today's outturn was softer than the 0.3% figure anticpated.
- Annual volume growth slowed sharply from 1.1% to 0.2%
On a nominal basis, spending in June lifted by an overall 0.4%, though excluding food (+0.1% in the month) which accounts for around 40% of all spending, turnover was up by 0.5%. Clothing and footwear led at +2.0%, followed by 'other' +0.6%, cafes and restaurants +0.5%, and household goods +0.2%. Department stores were the one area of weakness falling by 0.6% in June, although the category recorded the fastest rate of increase in spending over the quarter. Over the year, headline spending expanded by 2.5% outpacing the total ex-food at 2.2%, which was weighed by declines in household goods and department stores.
The ABS reported that overall retail prices lifted by 0.4% in the June quarter, down from 0.8% in Q1. As the next chart shows, the 'other' category (which includes items such as pharmaceuticals) led in Q2 (+1.0%), though broadly speaking price increases continue to come mainly from food. Weakness remains notable in the discretionary areas, though the declines in clothing and footwear and department stores have ended, possibly reflecting the pass-through from a weaker domestic currency.
Adjusting nominal spending for the above price changes, overall retail demand lifted by 0.2% in the quarter to be just +0.1% over the half-year. In annual terms, one has to go back all the way to 1991 to find a weaker outcome than Q2's 0.2% pace. Though, looking more closely, Q2's quarterly outcome (0.2%) is an improvement on the past two outturns from Q4 2018 (0.0%) and Q1 2019 (-0.1%). The sharp slowdown in the annual pace from 1.1% to 0.2% could potentially be overstated by a sizeable base effect as a strong 1.0% increase in Q2 last year fell out of the calculation, though there is no doubt that consumer demand is very soft.
The underlying detail confirms broad-based weakness in demand over the past year, though there were some better signs in this quarter at least, notably for department stores given that prices were also up modestly. Clothing and footwear volumes also increased, even as prices lifted. Also worth highlighting, household goods posted its first increase in a year, and while that was on lower prices, perhaps that is an early sign of improved sentiment in the housing market.
Across the states, nominal spending growth in June was led by Tasmania (+1.5%), followed by Western Australia (+0.8%), Queensland (+0.4%), New South Wales and Victoria (both +0.3%), while South Australia fell by 0.3%. Over the quarter, Queensland led (+1.5%), with South Australia next best (+1.2%), followed by Victoria (+0.9%) and Tasmania (+0.7%), while spending fell in Western Australia (-0.1%) and New South Wales (-0.2%). As can be seen below, Queensland comfortably tops the chart for annual spending growth, a position it has held since March of this year.
Retail Sales — June | Insights
The key takeaway from today's release is that consumer demand is very soft given concerns around spare capacity in the labour market, slow wages growth and wealth effects from the housing market correction, which clearly justifies the RBA's June and July rate cuts and the fiscal stimulus from the Federal government through tax relief to low and middle income earners. More timely indicators highlight that the housing market is improving, which should also help to support demand. The quarterly volumes outcome of 0.2% was a soft lead for household consumption in the national accounts (see chart, below), though retail spending only accounts for around 30% of that component.
