Via CBA:
Today’s August retail trade report was a shocker.
It now looks increasingly likely that strong sales growth in April and May were the anomaly in 2017. The other six months of the year have so far been weak.
It means that the concerns we flagged earlier in the year about the outlook for the retail sector are unfortunately coming to fruition.
On one hand it’s not surprising to see such weak retail trade outcomes given household income growth is so soft. But two consecutive monthly falls looks at odds with the recent strength in the labour market.
Across the states there was surprisingly broad‑based weakness. We say “surprisingly” because it’s incredibly rare for sales to fall in all states in the same month.
Cutting through the monthly volatility shows that sales growth is strongest in Victoria, which is unsurprising given such robust population growth. NSW is the only other state to be above the national rate. Sales growth is very soft in the other states.
Retail trade growth should pick up a little over the remainder of 2017 but is unlikely to be spectacular. The positive impact on the retail sector from strong employment growth and a buoyant tourism sector is being partially offset by very low wages growth and fragile consumer confidence.
And while monetary policy remains highly accommodative, household interest payments as a share of income have been edging up since the last rate cut because the stock of debt is growing faster than income. his is a handbrake on consumer spending and the retail sector in general.
Today’s data supports our view, which differs from current market pricing, that monetary policy will be on hold until well into 2018.
And Westpac:
Retail sales came in well below expectations in August recording a 0.6% contraction vs market expectations of a 0.3% gain, with July’s flat result revised down to a 0.2% dip. This was the weakest monthly result since March 2013 with the 0.8% contraction over July-August the largest 2mth decline since October 2010.
Retail sales have tracked an uneven path in 2017, with weather factors restraining sales in Q1 followed by a recovery through Q2. That recovery has been very short lived with the weak July-August sales results suggesting nominal sales may have stalled completely quarter to quarter in Q3.
The survey detail showed the weakness was broadly based across both store categories and states. Food retail, which accounts for 40% of all sales, recorded a 0.6% fall. Cafes and restaurants recorded a large 1.3% decline. Non food retail fared a little better with a 0.3% dip overall. However within this, household goods retail was down 1% following a hefty 2.1% drop in July. Moreover the only category to record a gain was department stores where sales rose 0.7% but were coming off a sharp 3% drop over the previous two months.
By state. NSW recorded a milder 0.2% dip in August but that followed a bigger decline in Jul. Vic and Qld recorded sharper contractions of 0.8%mth. All of the major eastern states have seen comparable sales declines over the July-August period.
Note that retail sales are in nominal terms so moves reflect both volume and price changes. We will get a better sense of how pricing has impacted with the release of the Q3 CPI later this month. However, even if price discounting has been a bigger than expected factor the underlying picture for Q3 retail volumes is still unlikely to look good, in turn pointing to significant downside risks to the Q3 consumption figures in the national accounts and wider GDP growth.
Rate hikes. Lol.
