Via Gareth Aird at CBA. Virus-afflicted economies do not prosper:
The 2020/21 financial year kicked off in spectacular fashion for the Australian retail sector. Retail trade (final) rose by a massive 3.2% in July (versus the preliminary estimate of 3.3%). Despite the big rise in unemployment due to the COVID-19 pandemic total retail sales hit a monthly record high in July. The huge injection of stimulus into the household sector is clearly supporting some parts of the retail sector.
Spending rose in all of the major categoriesover July. But in pure level terms there are some very different trends in play (see chart opposite). Some components of retail trade sit well above their pre-COVID levels while some are significantly below. More specifically, when we comparethe July outcometo February (i.e. pre-COVID) it is noticeable that there has been a huge surge in spending on household goods (+27.9%), food retailing (+12.3%)and other* (+14.4%). Clothing sales pushed above pre-COVID levels for the first time in July aftera big contraction in Q2 20,whilespending at cafes and restaurants(-13.0%)is down sharply.
We should not get carried away with the big lift in spending on household goods. The bulk of household goods (electrical, furniture and hardware) are imported goods. Spending on these items does very little to boost domestic production.In some ways there are similarities in the consumer response to thenow iconic $900 “cash splash” from the Rudd Government during the Global Financial Crisis (GFC) in 2009. Inboth cases household goods retailing surged due to the fiscal payments to households, albeit that the fiscal injection today dwarfs that of 2009.
By state,there was a lift in retail sales everywhere outside of Victoria where stage 3 restrictions were reimposed in early July(see Table 1 below).
Our more timely CBA credit and debit card data points to a fall in retail tradeover August. The lockdown in Victoria has driven the overall level of retail saleslowerandwe expectthatto continue in September. More broadly there has been a distinct softening in consumer spendingover August(see here). Whilst spending has dropped dramatically in Victoria the pulse of spending has also eased in NSW. Consumer sentiment posted declines across all major states in August and this appears to have negatively impacted on spending even in jurisdictions where there has been noreimposition of restrictions.
