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21st of July 2018

Economy



Retail sales pick up while international trade performance is slashed

Shoppers inside a supermarket

The Australian Bureau of Statistics has had a big rethink about things and it is good news for the retailers and less positive news in the trade-exposed sector.

Key points:Retail sales were stronger than expected in May, but still growing at a tepid 2.5% over the yearTrade surpluses for the past couple of months have been revised down heavilyNet result is household consumption may be a positive for GDP growth and exports a drag

Retail sales in May grew by a stronger-than-expected 0.4 per cent over the month on top on an upwardly revised 0.5 per cent growth in April.

Department stores led the way with a 3.9 per cent growth in sales after a concerted campaign of discounting.

Following that theme clothing, footwear and personal accessories (+2.2 per cent) also had a better month.

Food and household goods both showed a marginal pick-up, while sales in cafes, restaurants and takeaways fell (-1 per cent).

Western Australia was the only state where sales fell, while South Australians (+1.1 per cent) and Tasmanians (+1.5 per cent) hit the shops.

External Link: retail tweet

Despite the pick up, overall retail sales are still growing at a fairly tepid 2.5 per cent over the year.

"Overall, the May survey detail is not as positive as the headline figure suggests," Westpac's Matthew Hassan said.

"A lacklustre consumer, competitive pressures and price discounting still look to be clear headwinds for the retail sector.

Looking forward, price discounting may ease a touch with the introduction of GST on low value imported goods from July 1, which will affect the pricing and availability of offshore based online retail competitors."

However, Mr Hassan said the housing slowdown was likely to have some dampening impact on spending as well.

Capital Economics' Paul Dales said the figures suggested households were still coping well with the combination of low income growth and falling house prices.

"Unfortunately, we doubt that will last. And the recent rise in global trade tensions remains a big risk for a small, open economy like Australia," Mr Dales said.

External Link: Retail sales Trade surplus survives big downward revision

While ABS ratcheted up their retail numbers, it took the knife to previously published trade data.

The May trade balance came in at a lower-than-expected $827 million surplus — the market had expected $1.3 billion.

However, that was a 75 per cent increase on April, where the $1 billion surplus was suddenly wound back to $427 million.

March's blockbuster $1.7 billion surplus has become $1.1 billion on closer examination.

External Link: trade tweet

NAB's David de Garis said despite the month-to-month noise, Australia was still notching up trade surpluses, though at a lower level and thus potentially less growth supportive than in the first quarter.

"Both exports and imports rose strongly [exports +4 per cent, imports +3 per cent], indicative of still vibrant two way trade," Mr de Garis said.

The surge in imports was largely due to higher oil prices, while the export performance was again underpinned by the resources sector.

The completion of LNG terminals in Queensland, coupled with higher global oil prices, has seen LNG exports rise 25 per cent over the year.

JP Morgan's Tom Kennedy said while LNG has been a standout performer, its impact on GDP growth would fade as peak production is hit.

"This is important from GDP perspective given the large contribution from net trade to GDP in 1Q and means domestic demand growth will need to accelerate in the second half of 2018 for the RBA's lofty real GDP forecasts to be achieved," Mr Kennedy said.

Capital Economics Paul Dales said the retail and trade data taken together were broadly neutral for GDP.

"It looks as though a rebound in consumption growth will broadly offset a weakening in the external sector in the second quarter to keep the Australian economy cruising along nicely in the second quarter," he said.

External Link: Trade balance Read More




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