Retail trade contracted in February to its lowest level since 2012 as consumer spending dried up, a trend reading by an industry index suggests.
The Ai Group’s Performance of Services Index released on Tuesday recorded a second straight month of contraction in the Australian services sector in February.
Although the index reading improved 0.2 points from 44.3 in January – when a sharp contraction snapped a 22-month positive run stretching back to early 2017 – it still remained below the 50-point mark separating expansion and contraction.
Retail trade slipped further into contraction, falling 2.9 points to 39.9 and the lowest result since August 2012.
“The consumer-focused segments were largely contractionary with weakness in consumer spending across the majority of these sectors with retail and hospitality faring the worst,” Ai Group chief executive Innes Willox said.
“Consumer sentiment has fallen faster and more intensely than the business-oriented sectors as concerns around house prices, residential construction activity and the all-pervasive talk of slowing economic conditions take hold on consumer sentiment.”
Three of the four consumer-oriented sectors monitored by the PSI index contracted in February, with only the “personal, recreational and other services” expanding.
“Hospitality contracted sharply with negative (and deteriorating) results for sales, new orders, employment and deliveries,” the Ai Group report stated, with health and community services as well as retail services – which includes online sales – shrinking.
“Services businesses reported weak customer demand in February due to extreme heat and drought conditions in some areas of Australia, flooding in others and a deterioration in consumer spending.”
CommSec economist Ryan Felsman said slowing growth in the services sector is a concern, referring to both the PSI figures and a CBA/Markit PMI release that also recorded a contraction in services activity for the month of February.
“The services sector gauge highlights conditions in the sector as well as providing guidance on the economy more generally,” he said.