Healthy retail trade


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By CommSec

Retail trade

  • Retail trade rose by 0.4 per cent in August after rising by 0.1 per cent in July. Retail trade is up 2.8 per cent over the year.
  • Spending at department stores rose by 3.5 per cent in August with spending at hardware, building & garden suppliers up by 1.8 per cent. Takeaway food sales lifted by 1.5 per cent in August to be up 11.4 per cent on a year ago – the strongest annual growth in six years.

What does it all mean?

The latest lift in retail sales is encouraging. Not only did retail sales lift by 0.4 per cent in August but strip out food, and non-food retailing rose by a larger 0.5 per cent. The lift in retail activity was previewed by the Commonwealth Bank Business Sales index. The BSI had flagged a lift in activity over the last couple of months. And was another reason why the Commonwealth Bank retail forecasts (+0.5 per cent) was well above market consensus (+0.2 per cent).

Overall it is still early days but it does seem like spending plans are healing. Consumer and business spending were hit by ‘Brexit’ fears and election inertia in the first half of the year. With those issues out of the way, there is scope for a recovery in spending, especially with interest rates and inflation both so low.

In addition the improvement in consumer and business confidence is supportive of a lift in activity over coming months.

The breakdown of where spending is taking place showed a rebound in sales at department stores. While once again, Aussie households were out spending at take-away food outlets. After recording a staggering 3 per cent lift in real (inflation adjusted) spending in the June quarter, take-away food outlets have recorded a further lift in sales. In fact in annual terms spending at take-away outlets is up 11.4 per cent on a year ago – marking the strongest annual growth in six years.

The improvement in household budgets would be supportive in the lift in discretionary spending on life’s little luxuries.

The Reserve Bank will be quietly confident on the latest retail sales result. The retail sector would be hoping that the lift in activity continues and lifts into the Christmas spending period. CommSec has a further rate cut pencilled in for November but will be dependent on a super-low inflation result (due out in late October).

What do the figures show?

Retail trade:

  • Retail trade rose by 0.4 per cent in August after rising by 0.1 per cent in July. Trend spending rose by 0.1 per cent for the fourth straight month in August. Retail trade is up 2.8 per cent over the year.
  • Non-food retailing rose by 0.5 per cent in August after falling by 0.5 per cent in July. Non-food retail spending is up 3 per cent on a year ago – just shy of the weakest annual growth in almost 3 years (2.8 per cent July 2016).
  • Spending at department stores rose by 3.5 per cent in August with spending at hardware, building & garden suppliers up by 1.8 per cent. Takeaway food was up 1.5 per cent in August after lifting by 2.5 per cent in July. But spending at electrical goods stores was down 1.7 per cent after falling by 1.8 per cent in July.
  • Sales by chain-store retailers and other large retailers rose by 0.8 per cent in August after falling by 0.5 per cent in July. Sales are up 3.4 per cent over the year.
  • Sales rose in five of the eight states and territories: NSW (+0.5 per cent), Victoria (+0.7 per cent), Queensland (+0.7 per cent), South Australia (+0.4 per cent), Western Australia (-0.5 per cent), Tasmania (-0.1 per cent), Northern Territory (-0.5 per cent), ACT (up 0.7 per cent).

What is the importance of the economic data?

The ABS' Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.

What are the implications for interest rates and investors?

The economy appears to be regaining momentum. But as always more data is required to confirm the change in direction. Certainly confidence levels are healthy, providing optimism in the lead-up to Christmas.

The Reserve Bank may cut rates again, with the likely timing being November. The question is whether it will do any good. The next round of inflation data will be crucial to the likelihood of another rate cut.

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