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Thursday, July 2, 2020

Australian retail sales up by a record 16.9% in May

Australian consumers drove up retail sales at a record monthly pace of 16.9% in May coming out of the shutdown over late March through April. This result followed the record decline from April (-17.7%) when the retail sector was effectively shuttered, while in the month prior to that the stockpiling of essentials in preparation for the shutdown had seen turnover surge at a then-record pace of 8.5% in March. 

Retail Sales — May | By the numbers 
  • Nominal retail turnover surged up by 16.9% in May to $28.971bn coming in ahead of the preliminary estimate and consensus forecast of 16.3%. Retail spending had fallen at a record pace in April (-17.7%) amid the shutdown. In annual terms, growth swung from -9.2% to +5.8%. 


Retail Sales — May | The details

As expected, retail spending lifted at a record pace in the month of May (16.9%) with this result being stronger than what was reported by the ABS in their preliminary estimate two weeks ago (16.3%). In nominal terms, turnover came in at $28.971bn on the month after falling to $24.791bn in April — its lowest level going back to October 2015 — and in March it printed at its highest level on record at $30.110bn as spending at supermarkets, pharmacies, liquor stores, and household goods retailers soared. In a good sign for the domestic economy, retail turnover has recovered to be 4.4% above its pre-COVID-19 level from February and was undoubtedly helped by the success Australia had in containing the virus giving confidence to people that it was safe to venture out again and by pent-up saving with government's fiscal measures providing support to incomes.    


Across the major categories, there were some extraordinary increases in turnover when measured in percentage terms as shown in the chart, below, highlighted by a 129.2% rise in spending on clothing and footwear. 


However, for a cleaner read on the dynamics, the next chart shows the percentage changes in turnover across the categories in May compared to their pre-pandemic levels in February. On this basis, total spending is up by 4.4%, with turnover soaring in household goods (27.1%) likely driven by working from home arrangements, while it has also risen across basic food (9.9%), department stores (12%) and 'other' (9.3%). Hardest hit by the pandemic has been restaurants, cafes and takeaway food (-34.8%) due to mandated closures, in which spending at restaurants and cafes is down by 54.1% from 3 months ago while takeaway services have seen a 9.4% fall over the period. Meanwhile, spending on clothing, footwear and personal accessories has declined by 17.7% since February notwithstanding the 129.2% rise in May. For a guide on discretionary spending, sales ex-food has overall held up over the pandemic (0.4%).  
       
  
Turning to the states, as the summary table in the 'By the numbers' section highlights spending lifted at a very strong pace in each state in May. However, the key insight is that retail sales have recovered to be above their pre-pandemic levels in every state except for Victoria. Since February, sales have advanced in New South Wales (3.8%), Queensland (7.0%), South Australia (8.5%), Western Australia (9.4%) and Tasmania (5.3%) but they are down by 0.4% in Victoria. 



Retail Sales — May | Insights

It is a positive sign that retail turnover recovered to be above its pre-pandemic level as quickly as it did coming out of the shutdown. This is is consistent with the very strong improvements that were recorded in the consumer sentiment data in May, suggesting that Australians felt safe enough to re-engage in activity at the shops in a broader manner than just for essentials with cafes and restaurants also seeing some positive signs, albeit with social distancing restrictions still limiting trade. Of course, incomes are also a key part of this story and quite clearly the government's support measures through the JobKeeper policy and enhanced JobSeeker payments have been beneficial in boosting saving over the shutdown allowing Australians to be in a position to go out and spend in May, even after the severe dislocation that occurred in the labour market. Key now is keeping the virus under control, which has unfortunately taken a turn for the worse in the past week in some areas in Victoria, and in gaining clarity around how the government intends to progress with its fiscal support measures.