Tax cuts spent on sports gear, clothing & shoes
Retail trade; Financial Stability Review

Retail trade lifts: Retail trade rose by 0.4 per cent in August after an unchanged result in July (previously reported as a fall of 0.1 per cent). It was the strongest lift in spending in six months.

Big retail up: Sales at retail chains and other large retailers soared 0.7 per cent in August to be up 4.8 per cent on the year. It was the strongest annual gain in spending for a year.

Spending areas: Aussies spent more on toys, sports gear, clothing and shoes in August.

Reserve Bank Financial Stability Review: The Reserve Bank notes: “Overall, households remain well placed to service their debt.” and “The financial health of the business sector remains sound overall.”


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Retail trade data is important for consumer-focussed companies. The Financial Stability Review has implications for finance providers, the broader sharemarket and interest rate settings.

What does it all mean?

• Aussies have started to put the tax cuts to work. The more dependable spending measure – sales at chains and other large retailers – rose by 0.7 per cent in August to stand a lofty 4.8 per cent higher over the year. (ABS: “About 500 ‘large’ businesses are included in the survey every month, while a sample of about 2,700 ‘smaller’ businesses is selected. The ‘large’ business’ contribution of approximately 69% of the total estimate ensures a highly reliable Australian total turnover estimate.”)

• The lift in spending in August was the strongest recorded in the past six months.

• Aussies spent more on ‘little luxuries’ in August including toys, sport and camping gear, games, shoes and clothing. The data is the first real indication that tax cuts are starting to flow through the economy.

• Less positive was the spending on newspapers and books (down 6.2 per cent); takeaway food (down 0.4 per cent); and cafes and restaurants (down 0.2 per cent).

• Spending is likely to have lifted further in September, suggesting a solid contribution to economic growth in the quarter.

• There are no surprises in the latest assessment of the financial system. The Reserve Bank appears happy with the health of the business sector but notes that smaller businesses face challenging tight credit conditions

• The RBA is comfortable with the ability of households to meet debt repayments.










What do the figures show?

Retail trade – August

• Retail trade rose by 0.4 per cent in August after an unchanged result in July (previously reported as a fall of 0.1 per cent). It was the strongest lift in spending in six months. Annual growth lifted from 2.4 per cent to 2.6 per cent.

• Non-food retailing rose by 0.5 per cent in August after falling 0.3 per cent in July.

• Sales by chain-store retailers and other large retailers rose by 0.7 per cent in August after a 0.3 per cent increase in July to stand 4.8 per cent higher over the year.

• By industry, all but two of the 15 detailed sectors recorded growth in August. Strongest were “Other recreational goods” (sports, entertainment, toys), up 2.9 per cent; “Footwear and other personal accessory”, up 2.3 per cent; “Other specialised food” (butchers, seafood, fruit etc) as well as “Clothing”, both up 1.5 per cent.

• Across states/territories in August rises were reported in Queensland (0.8 per cent), New South Wales (0.3 per cent), Victoria (0.3 per cent), South Australia (0.6 per cent), the Australian Capital Territory (1.9 per cent), and Tasmania (0.2 per cent). There were minor falls in Western Australia (-0.1 per cent) and the Northern Territory (-0.1 per cent).

Reserve Bank Financial Stability Review

• Overall, the RBA noted: “The resilience of the Australian financial system has steadily improved as a result of actions taken in response to the lessons learned from the financial crisis.”

• Housing: “In the near term, risks from falls in housing prices have reduced but still exist. The uptick in housing demand and prices in Sydney and Melbourne has reduced the risk that sustained falls in housing prices could lead to widespread negative equity and so potential losses for lenders.”

• Housing: “For the country as a whole, the incidence of negative equity remains low and the vast majority of borrowers in negative equity are making their repayments on schedule.

• Housing: “Further out, there are potential risks from a resurgence in rapid housing price growth.”

• Households: “Most households are comfortably making their current debt repayments, with the arrears rate low both by international standards and in absolute terms. But the rise in housing nonperforming loans to its highest level in several years is notable.”

• Households: “Overall, households continue to have a sizeable stock of mortgage prepayments that could be used if they encounter difficulties servicing their loans. The total stock of prepayments (the sum of balances in offset accounts and redraw facilities) is around 16 per cent of gross housing credit, or 2½ years of required mortgage repayments at current interest rates.”

• Business: “Business balance sheets remain in good shape overall.”

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 Financial Stability Review is published by the Reserve Bank every six months. The report is basically a health check on the financial sector but it also assesses the state of household and business balance sheets.

What are the implications for interest rates and investors?

• As is always the case, there is material for the gloomsters and the optimists in the review of the financial system. But while there are risks, the Reserve Bank seems comfortable with the health of the overall financial system. Interestingly the RBA sees risks if home prices rebound too much as well as risks in terms of negative equity if home prices fall too far.

• Wallets are starting to be prised open. While it is still early days, the evidence is that tax cuts are flowing through the economy, moving from the Tax Office to taxpayers and to a raft of Aussie businesses such as retailers.

• There are always two components of the retail trade data: the data from the big retailers that provide figures to the ABS each month; and the data from smaller retailers that is only provided on a survey basis. Clearly the data on “Chains and other large retailers” is more reliable. And this data shows solid spending growth in August.

• Spending should be boosted by tax cuts in September and October. The question is whether spending again softens once the tax cuts are fully utilised by Aussie consumers.

• The Commonwealth Bank Group another rate cut in February 2020.

Published by Craig James, Chief Economist, CommSec