Australia: Solid second quarter for retail industry - Westpac

The Australian June retail report came in above expectations both for the month and for Q2 as a whole, the detail suggesting a lift in momentum over and above an expected weather-related rebound, explains Matthew Hassan, Senior Economist at Westpac.

Key Quotes

“Recall that the first few months of 2017 saw significant weather disruptions over the eastern seaboard including heatwaves, wet weather and Cyclone Debbie late in the month. Across the three major south eastern capital cities, the average number of days affected by severe weather was just over 10 in Q1, well above average. The inclement conditions contributed to a very weak quarter for retailers with real retail sales rising just 0.2%qtr and contracting 1%qtr in Qld.”

“Sales recovered in Q2, monthly data showing a 1% rise in Apr followed by a 0.6% gain in May. The June reported expended the rebound with a further 0.3% in the June month slightly above market expectations of a 0.2% gain. The rebound has lifted annual growth in nominal sales back to 3.8%yr, the strongest pace since Apr 2016. Some of this momentum will clearly fade as weather effects drop out of the picture.”

“For Q2 as a whole, real retail sales, i.e. ‘volumes’ rose 1.5% as the weather effects rebound coincided with aggressive price discounting. The quarterly gain was the strongest since June 2009 when aggressive fiscal and monetary stimulus were giving a major boost to household cash flows.”

“The quarter saw nominal sales up 1.4% and retail prices dip 0.1%, including a 0.1% dip for food that was a surprise given weather events also disrupted fresh fruit and vegetable supplies. Annual growth lifted to 2.5%yr.”

“The detail points to fairly broad based strength. While food retail was flat in June and department stores recorded a 0.3% decline other storetypes recorded solid gains (total retail ex basic food up 0.5%mth, +3.3%yr).”

“The Q2 gain was even broader with all storetypes except cafes & restaurants recording gains over 1%qtr.”

“It’s a similar story with the state breakdown with all states except Vic recording gains in the June month and all states except WA recording 1%+ gains.”

“Overall this is a significant upside surprise. Although the retail survey is a partial measure that does not always ‘map’ to the quarterly consumption figures in the national accounts, the jump from a flat Q1 to strong Q2 is a clear positive signal. Vehicle sales also posted another solid rise in Q2. Private sector business surveys also indicate conditions in ‘consumer service’ sectors have remained more buoyant than for retail throughout the first half of the year. Overall this points to upside risk to our current 0.8%qtr forecast for Q2 consumption, with an increase closer to 1% now looking more likely.”