Christmas bells? Retail reboundsRetail trade; Consumer sentiment; New vehicle sales
Monthly retail trade: Sales rose by 0.5 per cent in October after rising by 0.1 per cent in September – the strongest outcome in five months. Spending rose across all states and territories, led by footwear and other personal accessories, together with cafes, restaurants and catering services.
Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.7 per cent to 115.8 last week. Confidence remains above the average of 113.2 since 2014 and its long-run monthly average of 112.9 since 1990.
Vehicle sales: According to the Federal Chamber of Automotive Industries (FCAI), new motor vehicle sales totalled 101,365 in November, up 2.5 per cent on a year ago – the highest for a November month on record.
What does it all mean?
US retailing giant Amazon may have officially launched in Australia today, becoming the retailer’s fourteenth country to operate, but domestic retailers have their own reasons to be cheerful. Retail sales rebounded from 4½- year lows of 1.5 per cent over the year to September to 1.8 per cent in October. The monthly increase of 0.5 per cent was the best outcome in five months.
Aussie retailers have been under significant pressure this year given aggressive discounting and intense global competition. Consumers have benefited from falling goods prices while retailers have struggled with price deflation. Margins have declined and retailers have responded by cutting costs.
It is hoped that October’s broad-based bounce in sales will provide a strong lead in to the all-important Christmas trading period. Food prices are expected to normalise after weather effects and the lower Aussie dollar will likely reverse consumer preferences for imported goods and services.
Consumer confidence picked-up last week. The majority of the underlying sub-components increased. Household budgets have been strained recently by low wages growth, elevated household debt and rising power and petrol bills. However, continued strong jobs growth, improving business conditions, continued low interest rates and record low prices of a raft of goods should support consumer spending in 2018. That said, sentiment around the ‘time to buy a household item’ fell back under its long term average.
Aussies are continuing to purchase new vehicles with sales hovering near record highs. Consumption habits are changing. Aussies are buying record numbers of utes and sports utilities vehicles. The Toyota HiLux and Ford Ranger both dominate sales as both can accommodate families with their dual cabs while serving as work and recreational transportation.
What do the figures show?Retail trade
Retail trade rose by 0.5 per cent in October after rising by 0.1 per cent in September – the strongest outcome in five months. Annual sales growth rose to 1.8 percent from 1.5 per cent.
Non-food retailing rose by 0.7 per cent in October to be up 1.1 per cent over the year.
Spending rose the most for Clothing, footwear and other personal accessory retailing (up 2.5 per cent) from Cafes, restaurants and catering services retailing (up 2.0 per cent). Spending fell the most at “Newspaper and book retailing”, down by 2.3 per cent from “Other specialised food retailing” (fresh meat, fish, poultry, fruit and vegetables) down 0.8 per cent.
Spending rose across all Australian states and territories in October: NSW (up by 0.3 per cent); Victoria (up by 1.0 per cent); Queensland (up by 0.1 per cent); South Australia (up by 1.2 per cent); Western Australia (up by 0.5 per cent); Tasmania (up by 0.5 per cent); NT (up by 1.7 per cent); ACT (up by 0.6 per cent).
Sales by chain-store retailers and other large retailers rose by 0.6 per cent in October to stand 4.1 per cent higher over the year.
The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.7 per cent to 115.8 last week. Confidenceremains above the average of 113.2 since 2014 and long run monthly average of 112.9 since 1990.
Four of the five components of the index rose in the latest week:
• The estimate of family finances compared with a year ago was up from +4.1 to +5.9;• The estimate of family finances over the next year was up from +26.5 to +27.1;• Economic conditions over the next 12 months was up from +3.8 to +4.7;• Economic conditions over the next 5 years was up from +7.0 to +8.5;• The measure of whether it was a good time to buy a major household item was down from +33.8 to +32.9.
The measure of inflation expectations 2 years rose from 4.4 per cent to 4.5 per cent.
New vehicle sales
According to the Federal Chamber of Automotive Industries (FCAI), new motor vehicle sales totalled 101,365 in November, up 2.5 per cent on a year ago – the highest for a November month on record.
Sales for the 11 months to November stood at 1,086,296, 0.6 per cent ahead of last year’s record growth rate. New sales records have been recorded for seven out of 11 months in 2017.
Over the year to November, sales of passenger vehicles were down 7.3 per cent; sports utility vehicles (SUVs) were up by 8.6 per cent; light commercial trucks were up by 7.9 per cent; heavy commercial trucks were up by 22.7 per cent.
In the year to November, SUVs accounted for a record 40.2 per cent of all vehicle sales, ahead of passenger vehicles which comprise 36.4 per cent of total sales.
Two light commercial vehicles and five SUVs were among the nation’s top 10 best-selling vehicles in November. The Toyota HiLux was Australia’s best-selling vehicle in November with 4,103 sales, followed by the Ford Ranger (3,576 sales), the Toyota Corolla (2,959 sales), Mazda3 (2,464 sales) and the Mazda CX-5 (2,358 sales).
Across states and territories, sales over the year to November: NSW (+1.5 per cent); Victoria (+1.2 per cent); Queensland (+2.1 per cent); South Australia (+1.1 per cent); Western Australia (+13.4 per cent); Tasmania (+6.2 per cent); ACT (-1.2 per cent); NT (-2.4 per cent).
FCAI notes: “The momentum built in the market over the past few months appears to be continuing so we’re on target for another record year according to data released by the motor industry’s official statistical service, VFACTS.”
“Business buyers returned in force to the November market. While sales to private buyers fell 3.4 per cent on the November 2016 result, business purchases of SUVs and light commercials rose by 12.9 per cent and 14.6 per cent respectively.”
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 ‘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.
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day ofthe month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
What are the implications for interest rates and investors?
The bounce in retail sales will be welcome by beleaguered Aussie retailers, especially with the confirmed arrival of US behemoth Amazon. Pricing pressures are unlikely to subside given technological changes and global competition, including internet retailing and online sales. Retailers need to compete and offer something unique to consumers – an uncommon offering. Smaller retailers may win from the entry of Amazon if they elect to be suppliers in the Amazon marketplace. But bigger retailers, such as department stores face significant challenges.
Consumers appear more upbeat with confidence returning amid strong jobs growth. Summer has arrived and the Aussies have begun the Ashes cricket series positively. While “experiences” such as going to cafes, restaurants and sporting/music events remain preferred options for spending, consumers are beneficiaries of significant price discounting across the retail goods chain in the lead up to Christmas. Despite household budgetary constraints we are continue to buy new cars that suit our outdoor lifestyles.
While today’s data releases are welcomed, tomorrow’s economic growth (GDP) outcome will be more closelyobserved, especially the household consumption outturn.
CommSec expects interest rate stability over the next year.
Originally published by Ryan Felsman, Senior Economist, CommSec
Christmas bells? Retail reboundsRetail trade; Consumer sentiment; New vehicle sales