Retail spending slows as interest rates hit household budgets
Weakness in the retail sales data for July indicates that interest rates and high inflation are constraining household incomes, according to economists.
Australian retail turnover rose 0.5 per cent in July 2023, according to figures released yesterday by the ABS.
"The rise in July is a partial reversal of last month’s sharp decline in turnover. This was after weaker-than-usual end of financial year sales,” said ABS head of retail statistics Ben Dorber.
The rise in July follows a 0.8 per cent fall in June 2023 and a 0.8 per cent rise in May 2023.
“While there was a rise in July, underlying growth in retail turnover remained subdued. In trend terms, retail turnover was unchanged in July and up only 1.9 per cent compared to July 2022, despite considerable price growth over the year,” Mr Dorber said.
AMP deputy chief economist Diana Mousina said while the annual retail spending was up 7.8 per cent in July, these figures are in nominal terms.
“While inflation has slowed from its December 2022 peak, it is still high, so translating the monthly nominal retail data into volume terms indicates that volumes probably fell by around 0.6 per cent in July and have been declining since December last year,” said Ms Mousina.
Ms Mousina said the weakness in retail volumes is a clear sign that higher interest rates are working to slow spending.
“The constraint on household incomes from high inflation and the rise in interest rates means that consumer spending patterns will change and this is occurring with the shift in spending away from goods and towards services,” said Ms Mousina.
“Given lower-than-expected June quarter wages growth, the slowing in inflation over recent months and the lift in the unemployment rate to 3.7 per cent, we think the RBA will be comfortable keeping the cash rate on hold at next week’s meeting.”
However, the ABS data did indicate that there is still an appetite for consumers to spend on certain services such as eating out with restaurant reservations remaining elevated.
The data indicated that food-related spending was mixed with a rise in cafes, restaurants and takeaway food services while food retailing remained unchanged.
“Cafes, restaurants and takeaway food services turnover grew considerably, despite an overall slowing down in food-related spending in recent months,” the ABS said.
Department stores recorded the largest rise in July, followed by clothing footwear and personal accessory retailing.
Household goods retailing recorded a second consecutive fall, the eighth monthly fall in turnover in the past 12 months.
CreditorWatch chief economist Anneke Thompson said some of the larger discount department stores such as Big W have reported in their annual earnings that they are noticing a trend of new consumers shopping in their stores.
Ms Thompson said this suggests that consumers may be down-shifting to a cheaper product.
Food and beverage services and retail trade still remain in the top five sectors for late payments, she said.
“These industries are reporting that 8.3 per cent and 8.0 per cent of invoices, respectively, due to small businesses are more than 60 days overdue,” said Ms Thompson.
“This is particularly problematic for businesses in these sectors, as rent as a proportion of their operating expenses is typically quite high, and late payments impact their ability to pay their own invoices on time.”
Ms Thompson said that further weakness in retail spending is going to add further pressure to retailers and result in increasing failure rates going forward.
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