Extended lockdowns could lead to ‘W’-shaped recovery

Preliminary retail trade; Skilled job vacancies

What happened? Preliminary retail trade fell by 1.8 per cent in June – the most in six months – to be 2.9 per cent higher than a year ago. Victorian sales fell by 3.5 per cent in June with spending down by 2.0 per cent in NSW. But national nominal spending rose by 1.3 per cent in the June quarter after falling 0.1 per cent in the March quarter.

Implications: Investors in ASX-listed retailers could encounter some headwinds, with forced store closures (due to lockdowns) likely to impact July and August trading updates. Electronics giant JB Hi-Fi yesterday warned that its sales have suffered in recent weeks. Consumer demand could be weaker given reduced government income support and uncertainty about the job market. And construction stoppages could affect hardware store sales.

Other economic data: Skilled job vacancies fell by 0.5 per cent (1,200 jobs ads) from 12½-year highs to 241,931 advertisements in June. While it was the first monthly decline since April 2020, recruitment activity is still up 43.8 (or 73,700 jobs) when compared to pre-Covid-19 levels.

Retail trade data is important for consumer-focussed companies. Job vacancies are a key gauge of future employment.

What does it mean?

• With around half of Australia’s population and economy now subject to hard lockdowns, the country’s ‘V’-shaped economic recovery could quickly become ‘W’-shaped if persistent Covid-19 outbreaks aren’t brought under control. Already Commonwealth Bank (CBA) Group economists expect GDP to contract by 0.7 per cent in the September quarter alongside a likely lift in the unemployment rate in July. With lockdowns extending in Sydney and Victoria alongside mobility curbs in South Australia, it’ll be interesting to observe whether businesses see the latest outbreaks as being transitory – preferring to retain workers by cutting hours rather than jobs.

• In the absence of the JobKeeper wage subsidy scheme, governments have so far allocated around $5 billion in support payments to businesses and households in an attempt to offset the latest blow to workers and their employers. It is increasingly likely that Reserve Bank policymakers will scrap their decision to reduce (‘taper’) their bond purchases in September – anchoring borrowing costs at record low levels. In fact, they may even have to provide more support.

• Prolonged and more-frequent lockdowns – due to the highly contagious Covid-19 Delta variant – could pressure business balance sheets at a time when labour costs are already increasing. Of course, an acceleration of the vaccine rollout combined with labour shortages may encourage employers to retain their staff. Australia’s international border closures have reduced the supply of foreign workers, driving down the unemployment rate to 10½-year lows in June, as businesses find it increasingly difficult to find suitable skilled workers.

• Prior to the latest escalation in the health crisis, leading indicators of job demand were solid. Timely data from the National Skills Commission today showed that recruitment activity was elevated in June with 241,931 available positions advertised, just below the 12½-year high in May.

• That said, the impact of Victoria’s fourth lockdown on the labour market was apparent in June with job vacancies down by 3,000 positions or 4.7 per cent. In fact, it was the first decline in national job ads since April 2020. Of course, in July all eyes will be on Australia’s biggest labour market – NSW – with the shutdown construction sector accounting for around 10 per cent of Sydney’s workforce.

• Retail spending tumbled the most in six months in June – down 1.8 per cent – as reduced mobility due to multiple lockdowns discouraged shoppers from venturing to malls. Sales fell by the most in Victoria (down 3.5 per cent), followed by NSW (down 2.0 per cent) and Queensland (down 1.5 per cent). Food retailing was the only component to increase, up 1.5 per cent in the month, as households hoarded essential items.

• Investors in ASX-listed retailers could encounter some headwinds with forced store closures due to lockdowns likely to impact July and August trading updates. Electronics giant JB Hi-Fi yesterday warned investors that its sales have suffered in recent weeks. And consumer demand could be weaker given reduced government income support and uncertainty about the job market. And construction stoppages could impact hardware stores owned by Wesfarmers (Bunnings) and Metcash (Mitre 10 and Home). Despite this, homewares retailers Nick Scali and Beacon Lighting have bolstered their balance sheets and could benefit from another lift in demand during lockdowns.

What do you need to know?

Preliminary retail trade – June

• Preliminary retail trade fell by 1.8 per cent in June – the most in six months – to be 2.9 per cent higher than a year ago. Food retailing (up 1.5 per cent) was the only component where spending increased in the month.

• Victorian sales fell by 3.5 per cent in June with spending down by 2.0 per cent in NSW and down 1.5 per cent in Queensland.

• According to the Bureau of Statistics (ABS), “In seasonally adjusted current price terms, the preliminary estimate shows the June quarter rose by 1.3 per cent compared to the March quarter.”

Skilled vacancies – June

• The National Skills Commission reported that skilled internet vacancies fell by 0.5 per cent (or 1,200 job advertisements) from 12½-year highs to 241,931 advertisements in June.

• While it was the first monthly decline since April 2020, vacancies in June were 96.3 per cent higher than a year ago and recruitment activity is still up 43.8 (or 73,700 jobs) when compared to pre-Covid-19 levels.

• Skilled vacancies by state/territory in June: NSW (+0.9 per cent); Victoria (-4.7 per cent); Queensland (-1.2 per cent); South Australia (+0.3 per cent); Western Australia (-0.2 per cent); Tasmania (+1.3 per cent); Northern Territory (-0.7 per cent); and the ACT (+3.9 per cent).

• Job advertisements decreased in five of the eight broad occupational groups in June and in 32 of the 48 detailed occupational groups.

Published  by Ryan Felsman, Senior Economist, CommSec