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Vehicle sales are on the road back
Record lift in retail spending
Retail trade; Car Sales; Purchasing manager surveys

Retail trade: Retail trade rose by a record 16.9 per cent in May after falling by a record 17.7 per cent in April.

New vehicle sales: In June, 110,234 new vehicles were sold, down 6.4 per cent on June 2019. While down on a year ago, the result is the strongest since the COVID-19 crisis began. Sales of light and heavy commercial vehicles were up 9.3 per cent on June 2019.

Services sector: The CBA/IHS Markit Services Purchasing Managers’ Index (PMI) rose from 26.9 points in May to 53.1 in June – the first time above a reading of 50 since January. Any reading above 50 indicates an expansion in activity.

Construction sector: The AiGroup Performance of Construction Index (PCI) rose from 24.9 points in May to 35.5 points in June. Readings below 50 indicate a contraction of activity.

Retail trade data is important for consumer-focussed companies. The vehicle sales data provides guidance on consumer spending as well as conditions for the Autos and Components sector of the sharemarket. The services purchasing managers index provides guidance on conditions in retailing, financial services and the services sector more broadly. The Performance of Construction index provides insights for business conditions in the sector.

What does it all mean?

• The data from the Bureau of Statistics (ABS) has merely confirmed trading updates by retailers and weekly data from the Commonwealth Bank – Aussies are spending again. Grocery stores, liquor stores and houseware stores continue to do best.

• And there is good news on car sales. Really big purchases like car purchases have been off the agenda because they may have involved taking on debt. But the extended asset-write-off, super-low interest rates, competitive pricing and an easing of lockdown restrictions are enticing more people to upgrade their rides.

• When the car market starts lifting it usually signals that the broader economy is well and truly on the recovery path. We aren’t there yet, mainly because people are wary about what is happening in Victoria. But progress is being made.

• Encouragingly the latest reading on the services sector from the Commonwealth Bank shows that the economy is setting itself up for expansion after the recession in the first half of 2020.

What do the figures show?

Retail trade – May 2020

• Retail trade rose by a record 16.9 per cent in May after falling by a record 17.7 per cent in April and after rising by 8.5 per cent in March. Compared with a year ago, retail trade was down by 9.2 per cent.

• Non-food retailing rose by 25.6 per cent in May after falling 17.9 per cent in April. Sales are up 0.8 per cent on a year ago after being down 19.2 per cent in the year to April.

The Australian Bureau of Statistics wrote:

• “The gradual easing of social distancing regulations, and the re-opening of physical stores, bolstered retail trade in May,”

• “Retailers across a range of industries reported high numbers of consumers returning to stores, with some retailers noting levels similar to those seen in December.”

• “There were large month-on-month rises in clothing, footwear and personal accessory retailing (129.2 per cent), and cafes, restaurants and takeaway food services (30.3 per cent), with both industries coming off very low levels of trade in April. Levels in these industries remain well below the same time last year.”

• “Food retailing (7.2 per cent), household goods retailing (16.6 per cent), department stores (44.4 per cent) and other retailing (9.4 per cent) all recorded month-on-month rises in seasonally adjusted terms and are now at levels well above the same time last year. Retailers reported themes of continued spend on home improvements and high demand for recreational goods.”

• “In seasonally adjusted terms the results were broadly consistent across the states. There were rises in New South Wales (16.5 per cent), Victoria (17.2 per cent), Queensland (16.6 per cent), Western Australia (19.7 per cent), South Australia (16.1 per cent), Tasmania (17.3 per cent), the Australian Capital Territory (12.2 per cent), and the Northern Territory (8.1 per cent), in May 2020.”

• “Online sales contributed 10.1 per cent to total retail turnover, down on the 11.1 per cent contributed in April 2020, as physical stores reopened. This is still four percentage points higher than the 6.2 per cent seen in May 2019”

In addition the ABS noted on grocery stores:

• “To enhance the understanding of the economic impacts of COVID-19, scanner data was used to conduct analysis on supermarkets and grocery store spending. The analysis shows that retail 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.”


New vehicle sales – June

• In June 2020, 110,234 new vehicle purchases were made, down 6.4 per cent on a year ago. It was the lowest June result in nine years. In comparison, annual sales in March were down 17.9 per cent, with April sales down 48.5 per cent and May sales were down 35.3 per cent.

• The Federal Chamber of Automotive Industries reported: “The June 2020 market of 110,234 new vehicle sales is a decrease of 7,583 vehicle sales or -6.4 per cent on June 2019 (117,817) vehicle sales. June 2020 had one more selling day (25.2) than June 2019 (24.2), however this resulted in a decrease of 494.1 vehicle sales per day.”

• “The Passenger Vehicle Market is down by 8,828 vehicle sales (-26.1 per cent) over the same month last year; the Sports Utility Market is down by 1,578 vehicle sales (-2.9 per cent); the Light Commercial Market is up by 2,273 vehicle sales (8.6 per cent); and the Heavy Commercial Vehicle Market is up by 550 vehicle sales (13.5 per cent) versus May 2019.”

• “Toyota was market leader in June, followed by Mazda and Hyundai. Toyota led Mazda with a margin of 13,447 vehicle sales and 12.2 market share points.”

• Sales across states and territories over year to June: NSW (down 7.7 per cent); Victoria (down 13.6 per cent); Queensland (down 1.9 per cent); South Australia (up 3.6 per cent); Western Australia (up 3.2 per cent); Tasmania (down 16.1 per cent); Northern Territory (down 4.6 per cent); ACT (up 13.9 per cent).

• The rolling annual total of new vehicle sales in May was 950,816, down 13.7 per cent on the year after falling 14 per cent in the year to May. Passenger car sales fell by 26.1 per cent on the year with SUVs down 2.9 per cent and “other vehicles” up 9.3 per cent.

• In the year to May, SUVs accounted for a record 63.5 per cent of combined SUV and passenger vehicle sales.

Purchasing managers surveys – June

• Commonwealth Bank (CBA)/IHS Markit Services Purchasing Managers’ Index (PMI) rose from 26.9 points in May to 53.1 points in June – the first time above a reading of 50 since January. Any reading above 50 indicates an expansion in activity.

• The Commonwealth Bank Composite Output Index, combining readings on services and manufacturing, rose sharply from 28.1 points to 52.7 points in June.

• The AiGroup Performance of Construction Index (PCI) rose from 24.9 points in May to 35.5 points in June. Readings below 50 indicate a contraction of activity.

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 Federal Chamber of Automotive Industries releases estimates of new vehicle sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.

• The CBA Purchasing Manager indexes (PMIs) for services and manufacturing are released each month. The Australian PMIs are the local equivalents of similar indexes released for other countries. The PMIs are amongst timeliest economic indicators released in Australia. The PMIs are useful not just in showing how the sectors are performing but in providing some sense about where they are heading. The key ‘forward looking’ components are orders and employment.

• The Australian Industry Group compile the Performance of Manufacturing Index, the Performance of Services index and the Performance of Construction index each month (the latter with the Housing Industry of Australia). The Commonwealth Bank and Markit also compile purchasing manager surveys for manufacturing and services sectors. The surveys are amongst the timeliest economic indicators released in Australia. The surveys are useful not just in showing how key sectors are performing but also in providing some sense about where they are headed. The key ‘forward looking’ components are orders and employment.

What are the implications for investors?

• The simple message for investors at present is to widely assess all the economic surveys and data to get a true picture of where we are at. Economic data is timelier and most people now want to know what was happening last week rather than last month. The new weekly research publications as well as trading updates from listed companies are compulsory reading.

• At this stage, it would appear appropriate to extend JobKeeper for another three months to prevent the ‘V-shaped’ recovery from looking more like a ‘W-shaped’ stop-start recovery. The virus cluster outbreak in Victoria is a key consideration for keeping JobKeeper in place for a little longer period.

 

Published by Craig James, Chief Economist, CommSec