Housing-related spend drives July retail sales figures: Matthew Hassan

GUEST OBSERVER

Retail sales posted a 0.7% gain in the June month and a 0.7% qtr gain for Q2 in real inflation adjusted terms.

The monthly rise was in line with Westpac’s forecast but above the consensus view of a 0.4% gain.

The Q2 rise was above both our view and the consensus view of +0.4%qtr.

The June monthly result was driven by a solid 2.2% rise in household goods retail. Some of this reflects housing-related spending directly linked to new construction (furniture and fittings). However we suspect there was also a lift at the margin due to Budget measures aimed at boosting small business investment. For businesses looking to take advantage of these, there would have been a significant incentive to spend ahead of the end of financial year. Other categories were more mixed in the month with cafes & restaurants posting a 1.2% gain and ‘other’ retail up 2% mth but clothing down another 1.4% mth after a poor May and department stores and food retail about flat in the month.

With the June month in line with Westpac’s forecast, the main surprise for us from the Q2 result was around retail prices. The CPI detail had been pointing to a 0.3% qtr gain for retail prices, slightly softer than Q1’s 0.5%. Instead retail prices came in dead flat with modest gains for household goods and cafes & restaurants offset by falling clothing, department stores and ‘other retail’ prices and food up only slightly.

That weaker than expected price result meant more of the Q2 nominal sales lift was from volumes. The 0.8% qtr gain in real retail sales follows a 0.6% qtr rise in Q1 (revised down slightly from 0.7% qtr) and lifts annual growth to 3.6% yr.

In contrast to the June month, the Q2 real sales gains were more broadly based across categories with only department stores recording decline (–0.5% qtr).

The state breakdowns show a widening divergence between the mining states (+1.5% yr for volumes on a combined basis) and the ‘non-mining’ states (+3.5% yr).

Overall, the June report was stronger than expected and hints at some upside risk around the Q2 consumption figures. We currently expect a 0.5% qtr gain similar to that in Q1.

It should be noted that the retail survey has been a problematic guide to total consumer spending over the last year. Much of this relates to shifts in tourism related spending which mean retail spending is outpacing the measures that feed into total consumption. 

Strategy 

For the AUD

AUD/USD was trading just under 0.7270 going into the data releases. June trade balance came in near expectations. An upside surprise to the Jun retail sales print (0.7% v 0.4% forecast) and an upward revision of May numbers (0.3% to 0.4%) saw the Aussie jump to around 0.7290 initially. Given the solid data, this was a surprisingly small move, perhaps indicative of the pre-RBA mood of markets. AUD then pushed towards 0.7300 over the next half hour.

MATTHEW HASSAN is senior economist with Westpac.