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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Sunday, 19 June 2016

Retail trade growth losing momentum

Retail trade slowing?

Next month total Retail Trade industry turnover will surpass $25 billion for the first time.

The April figures recorded an increase of just +0.2 per cent, not the most auspicious of starts for the second quarter of 2016, though month-to-month the figures often record such dips before reasserting themselves.

Perhaps a more useful indicator is to look at annual retail turnover growth, which in trend terms has pulled back since August to now be at +3.44 per cent, which is a bit below the 5 year average. 

State versus state

Retail trade in most states has fared reasonably well over the past quarter, including in Western Australia, but the national figures have been hampered by weaker results for Queensland and the Northern Territory.

Over the last year or two, New South Wales and Victoria have been the powerhouse states, consumption and confidence aided by rising house prices, while Tasmania has suddenly shown a spike in activity after the best part of a decade in the economic doldrums. 

Meanwhile, as I noted here in March, Canberrans have gone shopping mad since the opening of a new IKEA store back in November. 

Industry groups

Household consumption accounts for a huge share of the Australian economy, and for that reason retail trade turnover is rightly considered to be an important indicator of its health.

That said, it's a bit of an urban myth that everyone stops spending during recessions before retail trade comes roaring back again in the good times - most of what we buy we keep buying regardless, such as food, drink, clothing, footwear, and so on. 

Certainly the purse strings can be tightened and loosened a bit, but the swings aren't quite as volatile as you might think, as the data through Australia's last recession showed. 

There was an unusual dip in food retail turnover in April, which largely accounted for the weak result, so we might expect to see a rebound here over the remainder of the quarter.

The standout performer over the last three months has been clothing and footwear, and discretionary spend for cafes, restaurants, and takeaways (a sector within which there has been a remarkable surge in expenditure over the past decade). 

In annual terms, however, household goods retail trade has once again remained top of the charts, fueled by the housing investment and construction boom.

The wrap...and the week ahead

Overall the April retail figures represented a soft result, but it would probably a mistake to read too much in to one month of figures.

There is an interesting week of news ahead, with the detailed labour force figures due out on Thursday, as well as the Australian demographic statistics for the final quarter of calendar year 2015.

I expect to see national population growth having steadied to a bit above 300,000 per annum, driven largely by Melbourne and Sydney.

However, these are historic figures and as I have previously noted here and here, strong capital city population growth will be underpinned going forward by the targeting of international students and a deliberate relaxation of the associated visa process.

Also this week will see the release of the ABS Residential Property Price Indexes for Q1 2016.

Although this market release is also historic in nature, the figures generally do command attention, being considered the "official" market data for house and apartment prices.

Market consensus expects to see steady growth in prices of around +0.8 per cent for the quarter, but with the usual wide variations between the capital cities.

I looked at the Q4 2015 figures here when nationally prices were up modestly and Brisbane racked up its 14th consecutive quarterly gain.

There's a suggestion that on a city-wide level Brisbane prices may have been flat or slightly down in the first quarter, with the high rise apartment sector acting as a drag on the results for the wider market.