Weak retail sales will contribute little to Q2 GDP

Friday’s retail sales figures released by the ABS will contribute little to June quarter GDP when the national accounts are released early next month.

As noted then, seasonally adjusted monthly sales rose by 0.4% in the month of June to be up just 2.5% over the year, with a clear downtrend evident:

In quarterly real chain volume terms, retail sales grew by 0.2% in the June quarter, which was above the March quarter’s 0.1% decline:

Annual real retail sales plunged to 0.2% – the lowest recorded level since the early-1990s recession:

Looking at the breakdown of the key components, you can see that real retail sales were dragged down by food (-0.4%) and household goods (+0.1%) over the June quarter, whereas department store sales (+1.4%) were strongest:

Retail volumes growth across the jurisdictions was mixed, with NSW and WA recording quarterly falls, weak growth recorded in TAS and NT, and stronger growth recorded in the other jurisdictions:

Retail sales are a sub-component of household consumption, which is itself the largest component in GDP (circa 55%). It is volumes that matter for GDP, so as stated above the 0.2% quarterly result will contribute little to the June quarter’s GDP growth.

That said, as the ABS has been at pains to point out, retail’s share of Household Final Consumption Expenditure (HFCE) has fallen significantly over the past 50 years as Australians spend a greater share of their incomes on services:

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Historically, Retail Trade estimates contributed 55-60% of HFCE in the expenditure side of Gross Domestic Product (GDP). However, this coverage of HFCE has fallen over time as household expenditure patterns have gradually shifted from goods to services. As a result, Retail Trade now contributes approximately 30% of quarterly estimates of HFCE.

Therefore, the impact on HFCE depends more on what happens to the other components. Nevertheless, retail’s weakness portends another soft Q2 GDP print, especially when viewed in light of the weakness in other areas (i.e. dwelling and public investment).

Leith van Onselen
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