Record online retail sales. Record sales of SUVs

Retail trade; New vehicle sales; Purchasing manager indexes

What happened? Retail trade fell by 2.7 per cent in July to be down 3.1 per cent on a year ago. But online retail sales soared by 19.3 per cent to record highs. New vehicle sales totalled 81,199 units in August and 1,073,890 over the year – a 22-month high. Notably a record 548,800 sports utility vehicles (SUVs) were sold over the year and a record 293,143 light and commercial vehicles sold.

Implications: Strong demand for new vehicles has supported the Automotive retail and Auto parts & equipment companies on the ASX. And the strong demand shows few signs of easing. Over the past year shares in Eagers Automotive have lifted 85.2 per cent; with Autosports Group, up 71 per cent; ARB, up 81.3 per cent; and Schaffer, up 36.5 per cent.

Other data: The ‘final’ IHS Markit services purchasing manager index fell from 44.2 in July to 42.9 in August – a second month of contraction (index below 50 points).

Retail trade data is important for consumer-focussed companies. New vehicle sales data provides insights into business and consumer spending and provides guidance on conditions for the Autos and Components sector of the sharemarket. The purchasing manager index gives a guide to conditions in manufacturing and services sectors.

What does it mean?

• The retail rollercoaster rolls on. Clearly, Covid-19 is one of the biggest influences on what we buy and where we buy our goods from. And the influence of the virus will not wane any time soon. Supermarkets and food outlets generally are witnessing higher sales with liquor retailers – especially in lockdown economies – while cafes and restaurants are negatively affected as people consume meals at home. Spending on clothing has slumped. Other retailers are affected by store closures, although the downturn in sales is partly offset by greater online purchases.

• The 19.3 per cent lift in online retail spending in the space of a month is truly remarkable. Online spending has doubled in the space of 18 months. Clearly Aussies continue to spend – rather the way they spend and the items they purchase continues to jump around. Retailers that have invested in delivery systems and supply chains will continue to be well supported. Amazon.com said yesterday that a surge in internet purchases in Australia is placing huge pressure on its distribution network.

• The services sector is again contracting – hardly a surprise when you consider the severity of lockdowns in NSW, Victoria and the ACT. Ahead of the official jobs data in mid September, it is notable that the latest services sector survey showed a fall in jobs for the first time in 10 months.

• The surprise in the services sector survey was the lift in confidence: “Overall business confidence however improved despite the deterioration of operating conditions in August. Firms were the most upbeat about the business outlook since June with hopes that the COVID-19 situation will improve and eventually spur a recovery.”

What do you need to know?

Retail trade – July

• Retail trade fell by 2.7 per cent in July to be down 3.1 per cent on a year ago. Total online sales were $3,724.7 million in July 2021, in seasonally adjusted terms. This was the highest level of monthly online sales in the history of this series.

• Sales at larger outlets fell by 1.4 per cent in the month with smaller retailers down 5.9 per cent.

• The Australian Bureau of Statistics wrote: “In July 2021, Food online sales were $993.9m, and Non-Food online sales were $2,730.7m, in seasonally adjusted terms. Food sales rose $112.7m (12.8per cent) in July 2021, the largest increase in dollar terms since the beginning of the time series. Non-Food sales rose $490.5m (21.9per cent) in July, the second largest increase in dollar terms recorded since the beginning of the time series, following April 2020.”

• Strongest growth of spending was in “Other” retail (includes online sales), up 3.7 per cent. Liquor retailing rose 3.5 per cent with Supermarket and grocery stores up 2.3 per cent. Sales fell most at Clothing retailing, down 19.9 per cent; Newspaper and book retailing, down 13.5 per cent; and Cafes, restaurants and catering services, down 12.6 per cent.

• Sales across states & territories in July: NSW (down 8.9 per cent); Victoria (up by 1.3 per cent); Queensland (down 0.9 per cent); South Australia (down by 3.3 per cent); Western Australia (up 1.2 per cent); Tasmania (up 2.7 per cent); Northern Territory (up 2.2 per cent); and the ACT (up 2.1 per cent).

New vehicle sales – August

• New vehicle sales totalled 81,199 units in August, up 33.1 per cent on a year ago. Passenger car sales were up 17.5 per cent over the year; sales of sports utility vehicles (SUVs) lifted 26.6 per cent; light commercial vehicles were up 71.2 per cent; and heavy commercial vehicles were up 39.3 per cent on August 2020.

• According to the Federal Chamber of Automotive Industries, “Toyota was market leader in August with 24.6 per cent of overall sales. This was followed by Mazda (9.4 per cent), and then Kia, Ford and Hyundai who all recorded around 6.2 per cent of market share. The Toyota Hilux was the highest selling model with 4,770 sold with the Ford Ranger and Toyota Corolla achieving second and third place.”

• Sales across states and territories over the year to August: NSW (-7.0 per cent); Victoria (+153.6 per cent); Queensland (+32.2 per cent); South Australia (+37.4 per cent); Western Australia (+32.3 per cent); Tasmania (+46.9 per cent); Northern Territory (+33.6 per cent); and the ACT (-28.3 per cent).

• In the 12 months to August, new vehicle sales totalled 1,073,890 – a 22-month high – to be up 17.3 per cent on a year ago. In the year to August, SUVs accounted for a record 70.3 per cent of combined SUV and passenger car sales.

IHS Markit Purchasing managers’ indexes (PMI) – August

• The ‘final’ IHS Markit services purchasing manager index fell from 44.2 in July to 42.9 in August – a second month of contraction (index below 50 points). The composite index, which measures combined services and manufacturing output, decreased from 45.2 to 43.3 in August – again, a second month of contraction.

• IHS Markit economists reported, “Job shedding notably returned for private sector service providers after nine months of growth according to the survey. Further weighing on business activity had been the persistent price pressures, made worse by the COVID-19 mobility restrictions which led to shipping delays and shortages. Looking on the bright side, however, firms were slightly more optimistic and hopeful for an eventual recovery in August compared to the prior month.”

Performance of Construction index – August

• “The Australian Industry Group and HIA Australian Performance of Construction Index (Australian PCI®) contracted by a further 10.3 points to 38.4 points in August 2021, indicating contraction in activity across the construction sector (results below 50 points). This was the second consecutive month of contraction, following a significant decline in July 2021, and the lowest monthly result since August 2020.”

Published by Craig James, Chief Economist, CommSec