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Posted: 2017-11-02 17:27:32

Today’s retail sales data provided yet more evidence that Australian retailers are doing it tough.

Data from the ABS showed nominal sales growth in September was flat at 0.0% in seasonally adjusted terms, short of forecasts for a gain of 0.4%.

Quarterly volume data — which eliminates the impact of price movements to help give a more accurate gauge of real consumption — showed growth edged higher to 0.1%, just beating forecasts of a flat result.

It marked the third straight month that retail sales growth missed expectations, and the flat result meant sales fell by 0.3% across the quarter.

That saw the year-on-year pace of sales slow to just 1.4%, down from 2.13% in August. Not a particularly promising result for a sector facing multiple challenges.

Aside from the threat of international competition from Amazon, retailers are also dealing with headwinds to domestic consumption, as indebted households face the prospect of rising energy costs and the housing market showing signs of cooling.

In view of that, we’ve compiled a list of the best insights from leading Australian economists in response to today’s results, with their assessment of the implications for economic growth and the future direction of interest rates.

Here’s what they had to say:

Gareth Baird, Commonwealth Bank

September’s flat outcome completed a terrible Q3 for retailers. The flat September result looks particularly soft in the context of a fall in sales over both August and July. The retail sector is feeling the pinch of weak household income growth, higher electricity prices, elevated household indebtedness, job security fears and competition which is putting downward pressure on prices. The latter is at least a windfall for consumers and provides a partial offset to soft wages growth.

Today’s retail trade report suggests that there is deflation in the retail sector. Some of that has been driven by competition – e.g. supermarket “wars” – which is a supply side phenomena and at least helps the consumer wallet to go further.

From a monetary policy perspective, the low inflationary pulse, which is reflecting soft wages growth and ongoing discounting in the retail sector, underpins our view that a rate hike is still a long way off.

Tom Kennedy, JP Morgan

Nominal monthly retail sales in Australia undershot expectations for the third straight month in September. This is the fourth weak reading in a row, and leaves nominal sales growth firmly in negative territory over the quarter, following the back-to-back contractions in July and August.

Retail volumes, which matter for goods consumption in real GDP, came in a touch firmer than expected at 0.1%q/q, though not sufficiently so for us to change our tracking forecast of 3Q consumption growth. Indeed, retail volumes are a fairly imprecise measure of broader household consumption, and mostly miss spending on services. As such, our forecast for household consumption is somewhat firmer than what is implied by retail sales alone, though at 0.5%q/q still marks a deceleration from the prior quarter.

It is important to remember that the retail sector is yet to feel the full effect of the entry of Amazon into the domestic market, which is widely tipped to place further downward pressure on margins and prices in the retail sector.

Jo Masters, ANZ

The retail sector is clearly facing challenging times, with very weak growth in volumes and prices falling in Q3. The combination of international competition on prices and several headwinds hitting household balance sheets is proving a challenging mix.

It will be interesting to monitor spending on household items in coming months given a slowing housing market. The data sets up a soft base for private consumption in the Q3 GDP print (to be released on 6 December), though retail sales is only 30% of consumption.

Sales of household goods are now 1.1% lower than a year ago, the first negative annual growth rate since December 2012. Moreover, sales in this category fell in every state except Queensland and Tasmania. This suggests the slowing in house price growth – and perhaps expectations of further slowdown – is impacting consumer behaviour.

Paul Dales, Capital Economics

The 0.1% q/q rise in real retail sales in Q3 (consensus 0.0%) and stagnation in nominal sales in September (consensus +0.4% m/m) are pretty poor results. The 0.0% m/m change in retail sales values in September comes after falls of 0.3% m/m and 0.5% m/m in the previous two months and meant that sales values fell by 0.3% q/q in Q3. It was only because retailers decreased prices by 0.4% q/q that volumes rose by 0.1% q/q. In other words, retailers discounted by more than usual and didn’t get much of a return from it.

Thankfully, the evidence suggests that real spending outside of retail held up well in Q3, so consumption growth may have only slowed from 0.7% q/q in Q2 to around 0.4% q/q in Q3. But this data shows that faster jobs growth is not offsetting the pressure on household incomes from low wage growth, rising utility bills, high debt and stagnating house prices.

Diana Mousina, AMP Capital

The weakness in spending over September was broad across the different sectors of retail, but particularly bad in “other retailing” which includes a whole range of speciality spending like craft goods retailing, duty free, pet & accessory retailing. Household goods and clothing and soft goods retailing also fell. Food, department stores and “eating out” retailing rose over September.

Growth across the various retailing sectors will always be multi-speed (especially on a monthly basis), but the overall story in the broad retail sector is still one of slow growth, as both volumes (or quantity) of spending growth is low and retailing pricing power is weak.

The pressures of soft wages growth and slowing wealth accumulation as home price growth slows are not going to abate any time soon and will limit household disposable income. Retail pricing power is still expected to be constrained by competition, and will probably intensity even further as Amazon enters the market in Australia.

The Reserve Bank would not want to start the process of lifting interest rates at a time when the outlook for the consumer was this uncertain so we remain comfortable with our view that rate hikes are unlikely to occur until the very end of 2018.

Matthew Hassan, Westpac

Sales were flat in the Sep month following a 0.5% decline in August and a 0.3% fall in July. The consensus forecast was for a 0.4% gain. That left nominal sales down 0.3% for Q3 as a whole, the weakest result since 2010.

However that was all due to an estimated 0.4% decline in retail prices, the biggest quarterly drop since 2004. Real retail sales, i.e. volumes, were estimates to have risen slightly by 0.1% for the quarter, slightly better than the market expectation of flat.

Stepping back, the picture from the report is an unambiguously bad one for retailers – who are cutting prices but finding no traction with volumes. The picture is not quite as bad for consumers who get some advantage from lower prices and do not look to be cutting back on consumption quite as sharply as feared.

The wash-up still points to marginal downside risks to the wider consumption estimates in the Q3 national accounts (to be released December 6).

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