Australia: Retail sales post solid gain - Westpac

Australia’s retail sales came in better than expected for April with a 0.6% gain following on from April’s 1% bounce-back from a weather-affected 0.1% contraction in March, notes Matthew Hassan, Senior Economist at Westpac.

Key quotes

“The consensus forecast was for a 0.2% monthly gain. Annual growth lifted to 3.8%yr, the strongest pace in just over a year.”

“Recall that the first few months of the year saw significant weather disruptions over the eastern seaboard including: a higher than normal number of heatwaves in Jan-Feb; a higher number of wet weather days through Feb-March; and Cyclone Debbie which hit landfall in Qld in late March generating severe weather conditions across significant parts of Qld and northern NSW. For the south eastern capital cities, the average number of days affected by severe weather was just over 10 in the March quarter, well above average and higher than during the 2010-11 Qld floods (although this was spread over 2010Q4 and 2011Q1).”

“Note that weather effects also led to significantly higher fresh fruit and vegetable prices (we estimate lifting the food component of the national CPI by 1.8% in Q2). This was clearly a factor in the strong retail rebound in April (food retail up 1.2%mth) and looks to have carried into May with basic food retail up a further 0.1% (note that this category typically sees slower, more stable growth than wider retail sales).”

“However, other categories combined posted a strong 1% rise in May, up from a 0.8% gain in April – sales excluding all food categories (i.e. basic food and dining out) rose 1.1%mth. Department store sales down 0.7%mth but coming off a 2.6% surge in Apr; cafes & restaurants posted a 0.6% gain after a strong 1.1% rebound from a 0.5% contraction in March; clothing up 1.3%, household goods up 2.2% and ‘other retail’ up 0.6%.”

“The state breakdown showed the strongest gains in NSW (+1.3%mt, +3.9%yr), Vic (+1.2%mth, +5.2%yr) and another surprisingly strong result for WA (+1.2%mth, +4.5%yr). Sales remained more subdued in SA (+0.3%mth, +1%yr) and retraced 1.1% in Qld, returning to more normal levels after last month's large 2.4% weather-related rebound.”

“Sales by retailer size showed a weather-related pull back for large food retailers (suggesting at least some of the initial price effects have dissipated) more than offset by a strong rise for large non-food retailers and a modest gain for small retailers.”

“Overall the May update puts retail sales on track for a much improved Q2 after weather events contributed to a very soft Q1 (sales volumes up just 0.1%qtr). While it remains to be seen just how much food price rises have contributed to recent nominal sales gains, the picture from non food retail is fairly promising.”