Retail spending returned to growth in May after the previous month’s surprising downturn, but still fell short of economists’ expectations in another disappointing set of official data.
After declining 0.1 per cent in April, retail spending rose 0.1 per cent in the month to $27.3 billion, according to seasonally adjusted data released Thursday by the Australian Bureau of Statistics.
But the result missed consensus forecast of a 0.2 per cent increase, just days after the Reserve Bank again cut the cash rate and Governor Philip Lowe expressed concern about the outlook for household consumption.
Dr Lowe named weakness in consumer spending as a factor in cutting the rate to a new record low 1.0 per cent as the central bank tries to lift sluggish economic growth.
AMP Capital chief economist Shane Oliver on Thursday said retail spending would likely remain weak even though rate cuts and signs of a housing market recovery could improve sentiment.
“Retail sales growth will be weak going forward given the lagged negative wealth effect flowing from the fall in house prices since 2017, and likely very constrained house price growth ahead, continuing low wages growth and an upwards drift in unemployment,” Dr Oliver said.
Increased consumer caution in the lead up to the federal election may also have played a part in May’s retail softness, according to ANZ economists Adelaide Timbrell and Felicity Emmett, with food retailing and recreational stores potentially suffering from an April “holiday hangover”.
They said the federal election could have delayed some bigger ticket purchases despite improvements in consumer sentiment, employment and the participation rate.
Cafes, restaurant and takeaway food services offset declines at department stores and supermarkets during May, while spending on household goods rose 0.5 per cent but clothing, personal accessories and footwear fell by 0.2 per cent.
The Australian dollar rose to a two-month high 70.48 US cents shortly after the release of the data but eased back to 70.34 US cents by 1340 AEST.
The figures were released at the same time as data showing a 1.1 per cent decrease in job vacancies for the three months to May.
Public sector vacancies rose 3.8 per cent but vacancies in the much larger private sector fell 1.6 per cent, pulling down the overall rate from 1.2 per cent growth in the February quarter.
Monthly retail spending rose in Victoria, SA, ACT and the NT, but fell everywhere else, including a 0.1 per cent decline economic powerhouse NSW.
Online retail turnover contributed 6.2 per cent to total retail turnover in original terms in May 2019, a rise from 5.7 per cent in April.
The absence of a strong outcome in June will likely mean that quarterly retail volumes will fall again next month, according to Indeed.com economist Callam Pickering.
“That is far from ideal for economic growth since household spending is over half the Australian economy,” Mr Pickering said.
Westpac senior economist Matthew Hassan said quarterly volumes – which feed into national accounts estimates of aggregate consumer spending – will depend heavily on inflation with the next consumer price index numbers due July 31.
“The June quarter CPI update … will be an important pointer on this question and the extent to which growth in consumer demand is slowing.”
Mr Pickering said it was unlikely that the retail sector will thrive until wage growth pushes “much higher”.
“That won’t happen in 2019 and any improvement will be gradual,” Mr Pickering said.
“Until then it is likely that the retail sector will rely on discounts to keep the money rolling in, with temporary boosts from tax cuts and a higher minimum wage.”