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.
Outlook bleak
Q2 COMPANY PROFITS -0.7%
Q2 INVENTORIES 0.6%
AUGUST JOB ADS -2.3%
AUGUST HOUSE PRICES FLAT
Frequently Asked Questions about this Article…
Why did retail spending in Australia slip back into a rut in July?
Retail spending fell in July after a temporary boost from about $2.85 billion in government payments (early carbon tax compensation and schoolchildren bonus). Those payments pushed spending up 0.6% and 1.2% in May and June, but when the stimulus stopped in July overall retail spending slumped 0.8% as households returned to saving.
How badly did department store sales fall and what does that mean for investors in retail stocks?
Department store spending jumped in May and June (1.2% and 3.7%) but then plunged 10.2% in July — its biggest monthly slide in seven years. Over the past year department store sales are down 5.3%, and major chains like David Jones have seen seven consecutive quarters of falling sales while Myer’s sales have been shrinking for four years, signalling ongoing structural weakness in the sector that everyday investors should watch closely.
What did the Bureau of Statistics report say about company profits and which sectors were hit hardest?
Company profits fell for a third consecutive quarter in June, down 0.7% for the quarter and 6.5% over the year. Mining profits were hardest hit (down 18.3% year‑on‑year), non‑mining profits were broadly flat, and profits fell in 10 of the 15 industry groups — with manufacturing down 8% and retail profits down 3.8% over the quarter.
Are inventories rising and what could rising stocks mean for demand and future earnings?
Inventories grew 0.6% overall, driven mainly by increases in mining and wholesale trade. The article notes this suggests a build‑up of stocks as demand has slowed, which can pressure future sales and margins if excess inventory persists.
What do wages growth and job advertisement trends tell investors about the labour market?
Wage and salary growth was weak, up just 0.8% in the quarter — the weakest pace since the financial crisis. ANZ job advertisement figures fell a further 2.3% in August (the fifth straight monthly decline) and are down 9.6% over the year, with the mining‑heavy states (WA, Northern Territory, Queensland) seeing six months of weakening. These trends point to a softening labour market.
How have falling commodity prices, especially iron ore, affected the economic outlook and interest rates?
Falls in commodity prices that began in late 2011 — and a recent slump in iron ore — are expected to weigh on the terms of trade and economy‑wide income growth. Deutsche Bank’s economist cited this as strengthening the case for further monetary easing. The Reserve Bank was expected to keep rates on hold at its meeting but may acknowledge iron‑ore weakness and leave the door open to a future rate cut.
What happened to the Australian dollar after the retail and profit data, and why does that matter to investors?
The Australian dollar slid about half a US cent on the news to a five‑week low near US102.40 before recovering to close at US102.58, down around half a cent from the previous close. Currency moves matter to investors because they reflect market reactions to economic weakness and can affect the earnings of exporters, importers and multinational companies listed in Australia.
What did recent inflation and housing data show for August?
TD Securities’ inflation gauge rose 0.6% in August (0.2% excluding volatile items), while the RP Data house price index was flat for the month, indicating modest pricing pressure in inflation measures and little near‑term movement in housing prices.
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