Australia June retail sales pick up as rate cuts cheer consumers
today Aug 5, 2019
Australian retailers enjoyed the best month of sales in June in four months in a sign recent mortgage rate cuts and a bottoming in the country’s housing prices had lifted the consumer mood.
Friday’s data from the Australian Bureau of Statistics (ABS) showed retail sales climbed 0.4% in June after a 0.1% gain in May, beating analysts’ forecast for a 0.3% rise. That was the best monthly growth since February when retail sales jumped 0.8%.
Retail sales growth has withered in recent months, staying under 1% since late 2017 as Australia’s once-booming housing market weakened dramatically leaving households with a mountain of debt.
Economists are increasingly optimistic good times will return helped by two back-to-back central bank rate cuts, tentative signs of a property market turnaround and government tax rebates to households.
“These factors could provide some near-term support for the retail sector and quite frankly they need it,” said Callam Pickering, APAC economist for global job site Indeed.
June data showed a boost in sales for clothing, footwear and accessories while eating out and takeaways were also popular.
Quarterly data was disappointing though as sales added just 0.2% in inflation-adjusted terms in the three months to June following an already sedate March quarter. Analysts were looking for a 0.3% rise.
The soft result suggests retail sales barely contributed to growth in Australia’s A$1.9 trillion economy in the June quarter. Household spending accounts for around 57% of annual gross domestic product.
In another sign of the broader turmoil in the sector, South Africa’s Woolworths Holdings has written down the value of its Australian David Jones business, citing “sustained and unprecedented economic pressures.”
“The retail sector in Australia is currently in recession,” the company said on Thursday.
Tepid household consumption is a major source of worry for the Reserve Bank of Australia (RBA) which, in June, cut its benchmark cash rate for the first time since August 2016 and quickly followed up with a second easing to an all-time low of 1.00% last month.
Financial markets are pricing in a real chance of a third cut to 0.75% before Christmas. With another 25-basis-point reduction already priced in, the local dollar barely moved at $0.6804.
A key reason the RBA may have to ease policy again is measly wage growth across Australia with unemployment at an eight-month high of 5.2%. Second-quarter wage price index data is due on Aug. 15.
In an early indication of what is expected, government data on Thursday showed annual wage rises in new enterprise bargaining agreements (EBAs) slowed to 2.7% in March quarter from 3.3% in the three months to September.
“Without a sustained pick-up in wage growth, factors such as tax cuts and lower rates will provide little more than a sugar hit for the retail sector,” Pickering added.
“We anticipate a near-term boost to retail but nothing that would persist into 2020 and beyond.”
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