Westpac is tipping a soft August for retail sales following good results between March and June. In a new report the banking group said that there has been some underlying ‘quickening’ in cyclical consumer demand – something that would be expected given recent improvements in the Australian Economy.
Retail sales rose 1.0% in May after a 0.3% rise in April and a 2.2% rise in March. Sales are up 7.1%yr. The May result was
above consensus forecasts of a 0.5% rise. However, there was a wide range on forecasts for the month reflecting uncertainty over the timing of fiscal payments.
See full report below.
Despite the continued strength of retail sales and hints of a revival in discretionary spending, the short term outlook is still for a wind back as the fiscal boost to spending ends. June sales should hold up but a ‘let down’ in the order of 1-2% is likely through July-August, beyond which a modest cyclical revival in spending should become more apparent.
Retail sales posted another solid 1% rise in May after a 0.3% gain in April and volatile swings in Feb-March. Sales are up 7.1% through the year, a further step up on the 6.3% pace in April and the strongest rate since 2007.
The result was above consensus expectations of a 0.5% rise although there was again a very wide range on forecasts going into the release.
Uncertainty surrounding the impact of the second round of fiscal payments on spending remains high.
The bulk of the payments went out in March-April ($10.3bn of the total $12.7bn) but clearly sales were still well supported in May. Anecdotally, sales have also held up in June. However, a sizeable ‘let-down’ in demand is likely once this support drops away (see our recent bulletin, Australian retail sales poised for sharp drop).
That said, the store type detail suggests there has been some underlying ‘quickening’ in cyclical consumer demand – something that would be expected given recent improvements in sentiment and unemployment expectations (i.e. job security).
Food retail rose 1%mth in May. More notably, department stores saw a strong 5.5% rebound in sales (confirming recent industry reports), while clothing retail rose 2.9% and cafes and restaurants saw a 1.4% gain in sales. Household goods retail sales fell 2% in the month but this followed strong gains in March-April – the fall may be an early sign of some wind-down in spending associated with the Govt’s cash payments.
Overall, we expect retail to again hold up well in June and July but with a significant ‘let down’ in sales coming through in August. Our estimates suggest this could see retail sales drop by as much as 1 to 2%. Any underlying cyclical improvement in sales should start to show through more fully in Q4. Unfortunately that means the uncertainty surrounding the strength of consumer demand will last for some time yet.
To download the full report see the PDF link below