RETAILERS hoping consumers would return to the shops after big government handouts have had their hopes dashed.
The $2.85 billion in early carbon tax compensation and schoolchildren bonus payments boosted retail spending by 0.6 and 1.2 per cent in May and June, but when the sugar hit stopped in July the month the government turned off its spending tap in order to return to surplus spending slumped 0.8 per cent.
Department store spending, which climbed 1.2 and 3.7 per cent in May and June, dived 10.2 per cent in July its biggest slide in seven years.
The Bureau of Statistics figures suggest consumers brought forward planned department store purchases in May and June rather than deciding to re-embrace the sector. Over the past year department store sales are down 5.3 per cent.
David Jones' sales have been falling for seven consecutive quarters. Myer's sales have been shrinking for four years.
"Retailers had cautiously welcomed the significant improvements in trading figures in the past couple of months," said Australian National Retailers Association chief executive Margy Osmond. "Sadly, their caution proved correct. With government stimulus from the federal budget, as well as carbon price compensation, families felt secure enough to shop but now the bottom has dropped out of that and it's back to the savings bunker."
Every state and territory went backwards in August, including the mining states of Western Australia and Queensland for the first time this year. The Australian dollar slid half a US cent on the news to a five-week low of US102.40? before recovering to close at US102.58?, down half a cent from Friday's close.
Separately released Bureau of Statistics figures show company profits slid for the third consecutive quarter in June, dipping another 0.7 per cent, to be down 6.5 per cent over the year.
Mining profits were down 18.3 per cent over the year, while non-mining profits were flat. Over the quarter profits fell in 10 of the 15 industry groups. Manufacturing profits slid 8 per cent and retail profits 3.8 per cent.
Inventories grew 0.6 per cent, driven by increases in only two sectors, mining and wholesale trade, suggesting a build-up of stocks as demand slowed.
Wage and salaries grew just 0.8 per cent in the quarter, the weakest growth since the financial crisis. ANZ job advertisement figures released yesterday show a further slide of 2.3 per cent in August the fifth consecutive monthly fall. Job advertisements are down 9.6 per cent over the year.
Job advertisements have been weakening for six months in the mining-heavy states of Western Australia, Northern Territory and Queensland.
"Underneath all this are the falls in commodity prices which started back in late 2011," said Deutsche Bank economist Adam Boyton. "With the latest slump in iron ore prices likely to see a pronounced fall in the terms of trade come the end of the year and hence a more pronounced slowing in economy-wide incomes growth the case for further monetary easing in interest rates remains strong."
The Reserve Bank is expected to leave rates on hold at its board meeting today but may acknowledge concern about the weakness in iron ore prices in the statement released after the meeting, opening the door to an eventual cut in rates.
The TD Securities inflation gauge climbed 0.6 per cent in August. Excluding volatiles, it climbed 0.2 per cent. The RP Data house price index was flat.
Frequently Asked Questions about this Article…
Why did retail spending spike in May–June and then slump in July?
Government stimulus — including about $2.85 billion in early carbon tax compensation and schoolchildren bonus payments — boosted retail spending by 0.6% in May and 1.2% in June. When those payments stopped in July as the government moved to return to surplus, retail spending fell 0.8% as consumers pulled back.
What happened to department store sales and what does that mean for retailers like David Jones and Myer?
Department store spending jumped in May and June but then plunged 10.2% in July — the biggest monthly fall in seven years — suggesting many consumers brought forward planned purchases. Over the past year department store sales are down 5.3%. The article notes David Jones has seen falling sales for seven consecutive quarters and Myer’s sales have been shrinking for four years, highlighting ongoing pressure on big department-store names.
How have company profits and industry profits trended recently?
Company profits slid for a third consecutive quarter in June, dipping another 0.7% and leaving profits down 6.5% over the year. Mining profits were particularly weak — down 18.3% year‑on‑year — while non‑mining profits were flat. Profits fell across 10 of the 15 industry groups, with manufacturing profits down 8% and retail profits down 3.8% over the quarter.
What does the recent build-up in inventories mean for everyday investors?
Inventories grew 0.6%, driven mainly by increases in mining and wholesale trade. The article suggests this reflects a build‑up of stocks as demand slowed, which can signal weaker near‑term sales for some companies and potential margin pressure if excess stock persists.
How are wages and job advertisement trends affecting the economic outlook?
Wage and salary growth was only 0.8% in the quarter — the weakest since the financial crisis. ANZ job advertisement figures fell another 2.3% in August (the fifth straight monthly fall) and are down 9.6% over the year. Job ads have been weakening for six months in mining‑heavy states (Western Australia, Northern Territory and Queensland), indicating softer labor demand that can weigh on consumer spending.
What role are commodity prices, especially iron ore, playing in Australia’s economic outlook and interest‑rate expectations?
The article highlights falls in commodity prices (starting in late 2011) and a recent slump in iron ore. Deutsche Bank economist Adam Boyton said weaker iron ore prices are likely to cause a pronounced fall in the terms of trade and slow income growth, strengthening the case for further monetary easing. The Reserve Bank was expected to leave rates on hold but may acknowledge iron ore weakness and leave the door open to an eventual rate cut.
How did the Australian dollar react to the weak retail and profit data?
The Australian dollar slid about half a US cent on the news to a five‑week low reported as US102.40 before recovering to close at US102.58, down roughly half a cent from the previous Friday’s close, reflecting market sensitivity to weaker domestic demand and profit figures.
What recent inflation and housing indicators were reported and what do they imply for investors?
TD Securities’ inflation gauge rose 0.6% in August (0.2% excluding volatile items), while the RP Data house price index was flat. Modest inflation readings and stable house prices suggest limited near‑term inflation pressure, which can influence central‑bank thinking on interest rates and shape the investment environment.
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