There’s a big warning hidden in June’s seemingly strong retail sales figures (ending the 2023-24 financial year) from the Australian Bureau of Statistics for investors and those urging the Reserve Bank to lift rates because inflation is too high.
The headline rise of 0.5% month-on-month was misleading – yes, it happened, but it was due to consumers seeking out end-of-financial-year bargains. In turn, it was retailers chopping prices and profit margins who attracted consumers to buy, knowing that, on past form, the opening months of the 2024-25 financial year are going to be tough.
No, the message to the Reserve Bank, the federal government, and the rate-rise now urgers is the fragility of household spending and confidence. As we saw yet another fall in retail volumes in the June quarter, the trend of the past year and a half continued as consumers continued to shun anything but one-off specials or deeply discounted products.
So after the 1% rise quarter-on-quarter in the Consumer Price Index (3.8% annual for the year to June), will the RBA risk crunching household consumption, confidence, and spending any further and breaking the solid labor market in the process?
Things are likely to get tougher in the next couple of months as consumers put away their wallets and cards and retreat to the sidelines, having made one-off purchases at sales and other special events.
The impact of pull-forward sales can be seen from last November when the spate of “Black Friday” one-off events by retailers saw monthly sales rise a strong 1.5%, only to be more than reversed with a slide of 2.1% in December.
The ABS said the 0.5% rise (seasonally adjusted) in June’s retail sales followed the 0.6% rise in May and 0.2% in April – on the face of it, a bullish set of numbers.
Ben Dorber, ABS head of retail statistics, said in a statement with the figures that this was due to “End-of-financial-year sales boosted spending in June by more than usual, particularly on discretionary items like furniture, electrical goods, and clothing.”
Turnover rose in all industries this month except for cafes, restaurants, and takeaway food services, which was relatively unchanged.
“Retailers told us that consumers continued to target sales events and look for the best deals before buying big-ticket items like furniture, bedding, TVs, and laptops,” Mr. Dorber explained.
He said all states and territories had a rise except for Tasmania, which remained relatively unchanged.
The ABS said sales were 2.9% higher than in June 2023, another seemingly solid figure – especially after much weaker readings earlier in the year – but that disguised the real story of Australian retailing: it’s weak with sagging volumes.
The 2.9% rise is the yardstick by which we can judge the performance of listed retailers over 2023-24 – groups such as Coles, Woolworths, Myer, JB Hi-Fi, Harvey Norman, and smaller chains. Some will do worse, some will do better, but the message from commentaries will be how tough it has been, with lots of talk about businesses facing “challenging” times and “headwinds.”
The ABS said retail sales volumes fell 0.3% (seasonally adjusted) in the June quarter 2024 despite a cumulative rise of 1.3% over the three months. The fall in the June quarter followed a drop of 0.4% in the March quarter 2024 and a rise of 0.4% in the December quarter 2023 – which was thanks to the Black Friday boost in November.
“Retail sales volumes fell for the sixth time in the past seven quarters, reflecting that consumers continue to hold back on spending. It also shows that much of the growth in monthly retail turnover reflects higher prices,” Mr. Dorber said.
Retail volumes on a per capita basis told a similar story – they fell 0.9% for an eighth straight quarter, down 3.0% compared to this time last year. The ABS said retail prices were up 0.9% in the June quarter, according to the CPI which was up 1% overall in the three months.