Via Westpac:
The May retail update showed sales edging up 0.1% in the month but essentially flat over the April-May period. This was a touch below the consensus forecasts of a 0.2% gain but in line with Westpac’s view. Annual growth slowed to 2.4%yr, the slowest pace since the start of 2018.
As noted last month, the timing of public holidays may have affected sales over April-May. Aside from that our main area of interest is around the sub-category and state detail and the extent to which these show wealth effect drags relating to the housing market corrections in Sydney and Melbourne. The evidence this month is mixed with softness centred on basic food retail (where price moves have been a driver) rather than the other categories we would ordinarily expect to see wealth effects show through.
Across the non food categories, household goods retail sales did record another decline, down 0.4%mth following a 0.9% decline in April, so there is still evidence of a wealth effect drag in ‘big ticket’ discretionary spend. However, results were more mixed across ‘small ticket’ categories with sales slipping for clothing (–0.2%mth) and department stores (–0.4%mth) but decent gains for cafes & restaurants (+0.7%mth) and ‘other retail’ (+0.6%mth).
The state patterns were also mixed with slippage in NSW (–0.1%mth) but a reasonably solid gain in Vic (+0.6%mth). The two ‘mining states’ recorded dips but sales rose 0.5%mh in SA.
Overall the May update is bleak but not bleaker than expected. Retail sales are treading water in nominal terms rather than contracting. As such the wash up for the June quarter volumes that feed into national accounts estimates of aggregate consumer spending will depend heavily on what has been happening on the price side. We suspect retail price inflation has slowed significantly from the food price driven gains over the last two quarters. The June quarter CPI update due at the end of the month will be an important pointer on this question and the extent to which growth in consumer demand is slowing.
And NAB:
…real retail trade could be flat-to-down in Q2 after falling slightly in Q1 and stagnating in Q4 last year.
This will weigh on Q2 GDP, although keep in mind that retail will soon benefit from the government’s personal income tax cuts, which take effect this month.
Tax cuts in 2019-20 worth a net $7.2 billion to growth. This equates to about 0.3pc of annual GDP, where the net boost to growth is likely to be a little lower given survey data suggest some households may save part of the tax cuts and since some spending will be on imports.
