Australia retail sales bounce, but consumer spending lacklustre

[SYDNEY] Australian retail sales rebounded in January after two months of tepid outcomes, although the underlying pulse was one of sluggish household consumption as record-low wages growth eats into spending power.

Data from the Australian Bureau of Statistics out on Monday showed retail sales rose 0.4 per cent in January, in line with market forecasts and up from a 0.1 per cent fall in December.

The bounce back will provide some comfort to the Reserve Bank of Australia (RBA) given it was a pick up in household consumption that helped the economy dodge a recession in the fourth quarter of last year.

Australia's A$1.6 trillion (S$1.71 trillion) economic output climbed 1.1 per cent in the fourth quarter, handily outpacing forecasts.

Yet with wages growth so anaemic, consumers only managed to spend more by saving at a slower pace, a trend that can only last so long.

RBA Governor Philip Lowe has also warned that high levels of household debt could curtail spending should consumers decide they have to put more aside to pay off that borrowing.

"It is still early days, but even if growth in retail sales were to remain at 0.4 per cent in February and March, it appears that real consumption growth would still struggle to match the fourth quarter's 0.9 per cent q/q rise," said Kate Hickie, economist at Capital Economics.

Monday's data showed sales of clothing, footwear and personal accessories dipped 0.4 per cent, likely in part due to falling prices amid intense competition, while department stores suffered a 0.5 per cent fall.

"The industry data are oscillating around a soft monthly trend," said Citi economist Josh Williamson.

That matters as the retail sector has annual sales of A$290 billion and is the country's second-biggest employer with 1.25 million workers.

"The other reason why we view retail sales growth as weak is because of the ongoing discounting cycle and competitive pressure from new entrants that is keeping price growth well contained. This in turn is helping to keep overall inflation pressures mild," Mr Williamson said.

Core inflation is already at a record low of 1.5 per cent and looks like staying under the RBA's target band of 2-3 per cent for another year or more.

While such softness might argue for a further cut in interest rates, the central bank is concerned an easing would only fuel more borrowing for speculation in housing and, ultimately, a damaging bust in the market.


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