Retail continues to be the focus of concern in the wake of the budget. From Adele Ferguson:
Savage price discounting of up to 70 per cent, sales racks in the aisles and ”buy one get one free” deals will ramp up as retailers try desperately to shift unwanted stock in a climate of withering consumer confidence.
The disastrous stock exchange debut of PAS Group, a grab bag of fashion brands including Metalicus and Yarra Trail, speaks volumes about the impact the federal budget has had on consumer sentiment in the retail sector – as well as the weather.
A report by Deutsche Bank – Reducing Estimates on the Back of Weak Consumer Sentiment – warns that none of the retailers are ”immune” to the sharp fall in consumer sentiment post the lead-up to the federal budget. The report says this, combined with a very warm start to the winter season, has prompted a number of downgrades from retailers.
To put it into perspective, market analysts have estimated a $5 billion budget drain. Citi said the sentiment effects of the budget should ”disappear quickly”, but it estimates that from July 1 the typical household is $602 worse off a year. ”The ‘stimulus’ from the government or Reserve Bank has disappeared and retailers will need to rely on wages growth or lower savings (higher house prices) to boost retail sales,” the report said.
In percentage terms it estimates a 2 per cent drag on retail spending next year.
There are other circumstantial signs of damage too. The CBA’s Business Sales Indicator (BSI) – a measure of retail, cars and airline spending – rose by 0.3 per cent in trend terms in May – the slowest growth in 10 months, and is flattening out:
As well, the BDO weekly sales monitor has definitely rolled into a downtrend after early year momentum:
The recent May employment report also showed a big fall in part time jobs, likely in some measure to be a pull back in retail employment:
Looking forward, further fallout of this nature can be expected. The income changes are permanent and although sentiment should rebound a little further, plans for retail capital expenditure and jobs will ease back. In the first quarter, retail was a big part of the jobs recovery:
This was even more true of the rebounding expected capex report:
Some pain can be blamed on the weather, too, but the timing looks very Budget-related. I’d expect only a muted rebound so is real damage to the rebalancing project that seeks a consumer-led recovery.
