24 August 2017   

5 min read
While shoppers put aside their concerns about high household debt, low wages growth and a slow down in the job market to open their wallets in May, retail sales softened slightly in June.

Australian retail sales grew 4.1% in May 2017, the highest level of growth since September 2016. Food and discretionary retail categories were both strong, led by supermarket, household goods and clothing categories.

However, sales growth eased in June, with retail sales figures growing by 0.3%. Household goods retailing led the way (0.9 per cent), followed by clothing, footwear and personal accessory retailing (0.8 per cent) and other retailing (0.2 per cent). Discounting in clothing and footwear in particular was behind the lift in sales.

Customers also spent more on eating out in June with cafes, restaurants and takeaway food retailers recording a 0.5 per cent increase, but department store sales fell 0.3 per cent.

Back in May, clothing sales increased 4.9%, with men’s and children’s categories performing particularly well, but some weakness in women's wear.

Citi analyst Craig Woolford says, “The strong growth in May comes after the previous year was impacted by a warmer start to the winter season and a slowdown in retail spending in the lead-up to the 2016 Australian Federal election.

Supermarket sales increased by 4.1% in May 2017, the highest level of growth in over a year. Citi’s analysis suggests that fruit and vegetable inflation was 19% in the June quarter 2017, which helped to lift industry sales growth.

While not as vigorous, department store sales grew at 0.2% in May 2017, despite weaker growth in the previous 12 months.

Likewise, the housing sensitive sectors were resilient in May, with gains in electronics, furnishings and garden supplies. Electronics rebounded after a softer start to the year, growing by 5.5%, which was likely driven by strong tax time sales as accelerated depreciation measures are expanded in FY17 and cooler weather in May driving higher heating sales.

Hardware and furniture sales rose to 8.6%, also likely benefiting from accelerated depreciation measures. Hardware (+1.4%) improved from the very weak March and April levels (-1.2).

“We expect food categories to outperform non-food categories for the remainder of 2017,” says Craig.

The latest Business Sales Indicator released by the Commonwealth Bank showed that spending lifted by 0.7% in trend terms in June, the strongest gain in just over two years. CommSec Chief Economist Craig James said, “Colder weather and end of season discounts encouraged Aussies to upgrade their wardrobes leading to an improved performance for the retail and clothing sectors.”

What is the road ahead for the Australian economy? The RBA believes it will strengthen over the second half of 2017 and will continue to transition domestic drivers.

Senior analyst JLL, Paul Chapko says with business surveys indicating that business conditions are at near decade highs and that business confidence is above the long-term average, “this points to positive employment growth and business investment over the short term.”