Retail spending in surprise fall
- House prices flat ahead of rates call
- Fruit and veggies drive inflation jump
- Fall in job ads deepens in August
- Manufacturing contracts for sixth month
Retail sales suffered a surprising spill in July, as consumers shunned department stores after two months of strong spending, denting the local dollar and narrowing market odds for another cut in interest rates. Measures of company profits also posted a surprise fall.
Retail sales dropped 0.8 per cent in July to a seasonally adjusted $21.418 billion following a revised 1.2 per cent rise to $21.579 billion in June, according to the Australian Bureau of Statistics, underscoring the ongoing weakness in the sector. A consensus of analysts polled by Bloomberg had tipped a 0.2 per cent rise.
"Retail spending surprised heavily on the downside in July," said Moody's Economy.com analyst Katrina Ell.
The weaker July figure follows two Reserve Bank rate cuts, worth 75 basis points, in May and June, as well as recent cash handouts by the government aimed at supporting household confidence after the recently enacted carbon pricing scheme.
"Helped by carbon tax compensation, we saw green shoots of a recovery in spending in June but this has not flowed through to July," said Ms Ell. ‘‘Until there is a sustained improvement in consumer sentiment, retail spending will keep disappointing."
The dollar falls
The RBA holds its September policy meeting tomorrow and is widely expected to hold rates at 3.5 per cent for a third straight month. Bank officials have sounded content to wait for cuts made in May and June to make themselves fully felt.
Investors are wagering the central bank will have to ease again by year-end, largely to offset the drag on global growth from Europe and, increasingly, China.
Interbank futures put a 50-50 chance on a move in October and are fully priced for a cut to 3.25 per cent in November. Overnight indexed swaps, which show where the market thinks the cash rate will be over time, put rates at 2.89 per cent in 12 months.
The dollar lost a third of a US cent on the weaker retail data, sinking to $US1.024.
It was also dragged lower by ABS June quarter operating profits which unexpectedly fell by 0.7 per cent, amid reduced demand and slowing activity in the sector. Economists forecast a 1 per cent rise it the quarter, following the revised 3.7 per cent decline in the March quarter.
Quarterly company inventories, another official measure of the economy that along with operating profits contribute to the gross domestic product reading to be released Wednesday, rose 0.6 per cent in the June quarter, following a 1.3 per cent rise in the previous quarter, the ABS said. Economists had expected a 0.2 per cent increase.
4Cast Ltd economist Celeste Tay said the rise in inventories implies a 0.3 percentage point subtraction from GDP growth in the second quarter. ‘‘Inventory drag in the quarter is consistent with our view that firms likely scaled back production in anticipation of a softening in the domestic economy and external demand,’’ she said.
Department stores suffer
While domestic consumption has remained healthy in some measures, the fall in retail sales has been triggered by faltering consumer confidence, competition from offshore retailers and a shift by a consumers to online purchasing which has hurt traditional retailers.
Department stores sales tumbled 10.2 per cent, making them the largest single contributor to the July retail sales fall, the ABS said. So-called 'other' retailing fall 2.8 per cent while clothing, footwear and personal accessory retailing slipped 0.9 per cent in the month.
Household goods retailing rose 2.4 per cent in the month, ahead of cafes, restaurants and takeaway food services which increased 0.3 per cent in the month, the ABS said.
Over the longer term, department store sales, whose business models have been challenged by the rise of online shopping in Australia, are down 0.5 percentage points in trend terms, while sales at cafes, restaurants and takeaway food services are up 0.8 per cent in trend terms, the ABS said. These changes also reflect a shift to more spending on services rather than products by consumers.
By contrast, online purchasing rose by 24 per cent to a record $11.7 billion over the year to July, according to the National Australia Bank online sales index, released last week. Online sales accounted for 5.3 per cent of the retail market, up from 4.9 per cent in January, NAB said.