That trend looks about to turn negative in July (figures released at the end of August). In fact, adjusting for inflation, retail sales volumes are probably now falling; although volumes did rise 1.4% over the June quarter.
With this background in mind, it is interesting to note that Roy Morgan’s business confidence survey for July shows that confidence is lowest for the retail sector, where confidence has nearly halved over the past year:
In July 2022 Roy Morgan Business Confidence was 94.9 (down 2.4pts since May). This is the third straight monthly fall and the first time the index fell for three straight months since the long lockdowns in New South Wales and Victoria in August 2021…
The monthly decline in Business Confidence was driven by a fall in confidence about the prospects for the Australian economy over the next five years with only 37.6% of businesses now expecting ‘good times’ for the economy over the next five years, down 2ppts from a month ago…
Business Confidence in July 2022 dropped to its lowest since September 2020 (85.6) during Victoria’s second wave of COVID-19 and is now 18.5pts below the long-term average of 113.4 but remains significantly higher than the latest ANZ-Roy Morgan Consumer Confidence of 84.1 for July 25-31, 2022…
The index has dropped by more than 20pts in five States but is virtually unchanged in New South Wales at 104.9, down only 0.4pts (-0.4%) on a year ago. It’s worth remembering that New South Wales entered a full lockdown late in June 2021 and spent the entire month of July last year in a lockdown…
Two industries have very low Business Confidence in June-July 2022 – Finance & Insurance on only 67.7, down a large 43.3pts (-39%) on a year ago, and Retail on only 64.9, down a massive 62.2pts (-48.9%) on the same time a year ago. Both industries are now a massive 30% below the national average…
These results make sense given the Reserve Bank’s aggressive interest rate hikes, which have smashed discretionary spending.
Retailers benefited immensely from the cratering of interest rates and heavy government stimulus over the pandemic. Therefore, it makes sense that they suffer the most from sharp interest rate hikes and the soaring inflation impacting non-discretionary items like petrol and energy, which are effectively un-stimulus.
The outlook for the retail sector, and business confidence more generally, will only worsen as the Reserve Bank continues hiking rates.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also Chief Economist and co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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