Big retailers hit pay dirt as economy recovers

Yesterday’s national accounts data for the December quarter showed that that household spending rose by 4.3% in the December quarter, with household consumption accounting for 2.3% of the nation’s 3.1% growth in GDP.

The economy’s rebound from the COVID-induced recession is proving to be a boon for listed retailers, with many enjoying strong growth in sales and their share prices.

Dermot Ryan of AMP Capital says factors such as the federal government’s stimulus program and Australia’s relatively low COVID-19 case numbers have been a major driver of the economic recovery and the retailer sector’s rebound. Moreover, retailers are expected to benefit further from the vaccine rollout and continued restrictions on international travel.

From The AFR:

Dermot Ryan, a portfolio manager at AMP Capital, said retailers Harvey Norman, Nick Scali and Super Retail were among the companies set to prosper as consumer spending strengthened through the economic recovery…

Shares in Wesfarmers, which owns Bunnings Warehouse, and Nick Scali both reached record highs last month. JB Hi-Fi and Premier Investments, which owns Just Jeans and Peter Alexander, hit their highs in January…

“Australia has had a massive rebound because we’ve had one of the biggest stimulus programmes in the world and we haven’t really had that much COVID,” [Dermot Ryan] said.

Many listed retailers also benefited greatly from taxpayer handouts like JobKeeper. For example, Harvey Norman received $14.5million in JobKeeper wage subsidies in 2020 despite posting a 116% profit increase.

Regardless, Australian retailers should continue to perform well throughout the remainder of 2021. Australian households have built an enormous savings war chest, worth $187 billion as at December:

Australian households accumulated a record $187 billion in savings in 2020.

Australian property values are also rising fast, which typically means rising consumption via the ‘wealth effect’.

The strong outlook for household consumption is a key reason why the Australian economy is tipped to post strong growth in 2021.

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