Australian retail sales exceed forecasts as spending resilient
AUSTRALIAN retail sales climbed more than expected in May, suggesting that household spending remains resilient in the face of rising interest rates and cost of living pressures.
Sales advanced 0.7 per cent from a month earlier, when they were little changed, and exceeded a forecast 0.1 per cent gain, Australian Bureau of Statistics (ABS) data showed on Thursday (Jun 29). The result was driven by discretionary spending and dining out, the bureau said.
“This latest rise reflected some resilience in spending,” said Ben Dorber, head of retail statistics at the ABS. “Retail turnover was supported by a rise in spending on food and eating out, combined with a boost in spending on discretionary goods.”
An early start to some end of financial year sales events boosted turnover along with Mother’s Day and the “Click Frenzy Mayhem”, the bureau said in a statement.
The largest sales rise since January shows some underlying strength in the economy that’s also been highlighted by a tight labour market. The policy-sensitive three-year government bond yield rose after the release and the currency edged up as traders boosted bets on a rate hike next week.
In contrast, stocks pared gains on concerns about further tightening.
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The Reserve Bank of Australia (RBA) unexpectedly hiked earlier this month to take the cash rate to 4.1 per cent from a record-low 0.1 per cent when it began tightening a little over a year ago. A weaker inflation reading a day ago had increased confidence that the RBA will stand pat on Tuesday.
Retail sales are an important factor in rate decisions given that consumption accounts for roughly 60 per cent of gross domestic product. Resilient household spending – backed by savings built up during the pandemic – has given policymakers’ confidence that the economy can withstand higher rates.
Still, Thursday’s report jars with signs that consumers are being squeezed between higher borrowing costs and elevated inflation.
Australia’s Recession Risk Spikes as RBA Peak Rate Seen at 4.35 per cent
In a further headwind, a large number of mortgages that were fixed for three years at record low rates during the pandemic are due to switch to higher floating rates in the coming months.
Today’s retail report also showed:
- Businesses, including online-only retailers, florists, and pharmaceutical and cosmetics retailers recorded the biggest gain at 2.2 per cent; cafes, restaurants and takeaway food services advanced 1.4 per cent.
- Clothing, footwear, and personal accessory retailing slid 0.6 per cent and department stores dropped 0.5 per cent – the only categories to fall.
Bloomberg Economics expects weakness in 2023 as the full impact of policy tightening passes through to household budgets. Economist James McIntyre said the outlook for retail sales remain challenging despite strong job gains, rising wages, increasing population growth and house prices climbing again.
“Overall, sales are likely to remain tepid until the RBA reverses course and begins cutting rates, which we see happening in the first quarter of 2024,” McIntyre said. BLOOMBERG
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