Record lift in retail spending
Retail trade: ‘Preliminary’ retail trade rose by a record 16.3 per cent in May (highest in 38 years of records) after falling a record 17.7 per cent in April and rising 8.5 per cent increase in March.
Minimum wage: The Fair Work Commission awarded an increase of 1.75 per cent in the minimum wage. The minimum wage will be $753.80 per week, or $19.84 per hour.
Retail trade data is important for consumer-focussed companies.
What does it all mean?
• Slowly but surely Australia is coming out of lockdown. In March and April Aussies restricted their spending (through choice as well as compulsion) to supermarkets, specialty food stores, liquor outlets and household goods stores – especially electrical goods and furniture. But in May, other stores started to re-open, particularly late in the month. It was estimated that 50 per cent of retail outlets were still closed on May 20.
• Clothing and shoe shops, and takeaway food outlets were amongst those to re-open later in the month. Certainly many Aussie shoppers had been active buying on-line through the shutdown period but they came into their own when the bricks and mortar stores re-opened. The Bureau of Statistics reported a doubling of spending at clothing and footwear outlets between April and May.
• The month of June will be the first ‘full’ month of trade for many retailers. So a further lift in spending is likely, supported by pent up demand from the lockdown. Some liquor spending may be diverted to pubs and clubs, but latest CommBank estimates indicated that purchases from bottle shops remained stable at a high level in mid-June.
• Today’s data is a piece of really positive news for consumers and businesses alike. It says that the economy is getting back to normal. The data will especially be heartening for smaller retailers.
• As businesses re-open, and spending lifts, then those on JobKeeper and JobSeeker will return to their workplaces. The hope is that process remains swift to reduce the time that people are not working. The longer that people stay away from work, the greater the risk that their skill levels deteriorate.
• The lift in the minimum wage is a fair result. Unions will say the increase is too low and employers will say the increase is too high. But the pay increase should assist in the recovery process. The aim is to get more people spending and working: faster economic growth is in everyone’s interests.
What do the figures show?
Retail trade – May
• ‘Preliminary’ retail trade rose by a record 16.3 per cent in May after falling a record 17.7 per cent in April and rising 8.5 per cent increase in March.
• Retail trade in May was up by 5.3 per cent over the year. The average annual growth rate in 2019 was 2.7 per cent.
The ABS reported:
• “There were large increases in turnover in Clothing, footwear and personal accessory retailing and Cafes, restaurants and takeaway food services, as restrictions eased throughout the month. The monthly rise in Clothing, footwear and personal accessory retailing exceeds 100 per cent but remains more than 20 per cent down on May 2019. Similarly, Cafes, restaurants and takeaway food services rose around 30 per cent from April to May 2020 but remains 30 per cent below the level of May 2019.
• Turnover increased across all subgroups in the Household goods retailing industry, with Furniture, floor covering, houseware and textile goods retailing, Electrical and electronic goods retailing and Hardware, building and garden supplies retailing all recording large rises from April 2020 to May 2020. Turnover in Household goods retailing is 30 per cent higher compared to May 2019. Turnover for Department stores also increased from April 2020 to May 2020.
• Food retailing rose 7.2 per cent from April 2020 to May 2020. Turnover rose for Perishable goods (7.0 per cent), Non-perishable goods (3.8 per cent) and All other products (5.8 per cent) in May 2020 compared to April 2020, in original terms. Annually, Perishable goods rose 14.5 per cent, Non-perishable goods 11.8 per cent, and All other products 2.5 per cent. The annual growth of 13 per cent in Food retailing is consistent with consumers purchasing additional food and beverage for home consumption.”
• In its press release the ABS said: “These preliminary figures show rises in every industry. In percentage terms, the rises are particularly strong in industries that recorded low levels of trade in April.
• There were large rises for clothing, footwear and personal accessory retailing and cafes, restaurants and takeaway food services, as restrictions on trade were lifted during May. Despite the rises, both these industries remain well down on the levels of May 2019.
• There were also large rises in household goods retailing, where retailers reported increases in spending relating to homes, including furniture, home entertainment, home offices, and home improvement.
• Food retailing rose as households continued to consume additional food and beverages at home during May. Levels in liquor retailing remain high, as restrictions on hospitality, such as bars, clubs and events, remained in place for May 2020.”
What is the importance of the economic data?
• The ABS 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 ABS now provides preliminary estimates for Australian retail turnover. “This estimate is compiled from the monthly Retail Business Survey and is based on preliminary data provided by businesses that make-up approximately 80 per cent of total retail turnover and is therefore subject to revision.”
What are the implications for investors?
• The retail data is 18 days old. In the period since, more businesses have re-opened, more people have returned to work and more people have started visiting shopping centres again.
• Aussies can give up thinking about jetting to London, New York or even Bali this year. That means more holidays at home and more spending on little luxuries. Who knows: we may just like it!
Published by Craig James, Chief Economist, CommSec