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Economics | August 5 2020

Spotlight: Record fall in retail spending Economic Perspectives

Record fall: Real or inflation-adjusted retail trade fell by 3.4 per cent in the June quarter – the biggest quarterly fall since the introduction of the GST 20 years ago. And over the full 2019/20 financial year, real retail trade fell by a record 0.3 per cent (35 years of data) while nominal spending (includes prices), rose by 2.9 per cent.

Retail trends: Unpublished data from the Australian Bureau of Statistics show that COVID-19 caused big changes in consumer behaviour over the past year. Aussies bought more alcohol, electrical goods, toys, games and hardware items. But Aussies – through compulsion as well as choice – made fewer visits to cafes, restaurants, clothing and shoe stores and bought fewer newspapers & books.

Retail trade data is important for consumer-focussed companies.

What do the figures show? It was a year dominated by the COVID-19 coronavirus. Aussie consumers bought fewer good and services over

the year, but in many cases it wasn’t by choice, rather the fact that lockdowns kept shoppers indoors. And while shoppers have spent more over the last few months, new lockdowns in Victoria will lead to a fresh bout of retail volatility.

Inflation-adjusted spending (volume) fell by a record 0.3 per cent over 2019/20. Add in prices and consumers spent 2.9 per cent more on retail goods and services over the year. There were higher prices especially in food

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Economic Insights. Spotlight: Record fall in retail spending

categories, in part reflecting the impact of the east coast drought and bushfires, but also reflecting high demand and a limited supply of a range of goods.

Prices in the food retailing sector rose by 5.5 per cent over 2019/20 with supermarket prices up 5.9 per cent and prices at specialised food outlets like butchers and fruit & vegetable shops up by 4.9 per cent. A lower Aussie dollar also led to higher prices for some imported goods.

Of the 15 retail sub-groups, Aussie shoppers cut back in spending (lower volumes purchased) in eight groups. Aussies bought more beer and wine (up 10.4 per cent) as they were forced to stay home – the strongest growth in 12½ years. Add a modest lift in prices and nominal spending at liquor outlets rose 12.8 per cent over the year. Aussies also spent more (higher volumes) on electrical goods (up 10.3 per cent – fastest in 4 years); sporting goods, toys & video games (up 7.6 per cent – fasts in 5½ years); hardware, building and garden supplies (up 7.2 per cent – fastest in almost 5 years); and

chemist goods (up 3.9 per cent).

Amongst some of the areas that Aussies cut back on in 2019 (lower volumes) were cafes and restaurants (down 15.7 per cent – biggest drop in 35 years of records); newspapers & books (down 15.6 per cent), clothing (down 8.9 per cent – biggest drop in 35 years of records) and shoes & other personal accessories (down 9.0 per cent – biggest drop in 8 years).

In dollar terms, spending fell across all the above-stated categories including takeaway food stores (down 1.6 per cent) and department stores (down 0.4 per cent).

While the spotlight has been on panic buying of items like toilet paper, over the past year the number (volume) or purchases at supermarkets & grocery stores only grew by 0.8 per cent. Add in inflation of almost 6 per cent, and actual dollars spent at supermarkets rose by 6.7 per cent over 2019/20.

Retail trade – June quarter 2020

In real (inflation-adjusted) terms, retail trade fell by 3.4 per cent in the June quarter after rising by 0.7 per cent in the March quarter. It was the biggest quarterly fall since the introduction of the GST 20 years ago.

In nominal terms (includes inflation), retail trade fell by 2.3 per cent in the June quarter.

Prices across retailers rose by 1.2 per cent in the June quarter after rising 1.9 per cent in the March quarter (biggest quarterly increase in 31 years, excluding the GST introduction). Annual growth of retail prices rose from 3.5 per cent to 4.2 per cent.

At an industry level, real retail sales in the June quarter rose most for “Other recreational goods” (sporting goods, toys, entertainment) (up 22.3 per cent) from hardware, building and garden supplies (up 20.4 per cent), liquor retailing (up 17.6 per cent) and Electrical goods (up 13.3 per cent).

Real retail sales fell most for cafes and restaurants (down 43.7 per cent), clothing (down 22.4 per cent) and footwear, watches and personal accessory (down 21.2 per cent).

What is the importance of the economic data? The Bureau of Statistics’ Retail trade publication contains the

most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750

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Economic Insights. Spotlight: Record fall in retail spending

‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.

What are the implications for interest rates and investors? It’s been a strange 12 months. Apart from COVID-

19, interest rate cuts, the east coast drought, housing recovery and a softer job market were all influences at various points over the year.

The good news is that real and nominal spending have lifted over the few months. In fact annual nominal growth of retail trade stands at 8.5 per cent, compared with growth of 1.8 per cent – a 28 month low – just before the crisis in February 2020. That said, retail volumes posted their second largest fall on record in the June quarter due to the virus lockdown – likely detracting from GDP.

But the more recent strength in retail spending supports the Reserve Bank view that “the downturn is not as severe as earlier expected”.

Aussie consumers certainly are spending, supported by stimulus measures and behavioral changes, including the redirection of spending away from travel due to border closures.

The interesting point is that prices are also lifting. Over 2019/20, retail inflation stood at 3.2 per cent. And over the 12-month period to the June quarter, retail prices were up by 4.2 per cent – the highest annual growth in 19 years. The easing of the east coast drought, and a softer job market should serve to reduce inflationary risks over the coming year. The last thing the Reserve Bank wants now is a stagflationary situation of recession, high jobless rate and higher-than-normal retail price growth.

Craig James, Chief Economist, CommSec Twitter: @CommSec

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Economic Insights. Spotlight: Record fall in retail spending