Year starts well, but retail wary
But the retail industry and economists have warned not to start popping the champagne corks just yet, with only two months of retail sales for 2013 unveiled and much of the recent sales jump reflective of a degree of "pent-up" consumer demand after weak household spending in the second half of 2012.
And that weak household spending could resume, as consumers grow increasingly anxious over the economic crisis in Europe, a sustained federal election campaign in Australia, and fears the May budget could see the Treasury pillage superannuation accounts to fill a budget black hole.
Figures released on Thursday by the Australian Bureau of Statistics showed retail trade rose by 1.3 per cent in February after rising by an upwardly revised 1.2 per cent in January (previously 0.9 per cent). Annual spending growth rose from 3.2 per cent to 4.6 per cent.
The 2.5 per cent increase in retail trade in the first two months of 2013 marked the strongest start to a calendar year since 2001.
"These data, along with rising consumer confidence and house prices, suggest that household spending is beginning to respond to lower interest rates," said ANZ economic analyst Savita Singh.
"At this stage, it's too early to tell whether the recent strength in retail sales will continue. Nevertheless, interest rate-sensitive parts of the Australian economy are now showing clearer signs of responding to lower interest rates."
Australian National Retailers Association chief executive Margy Osmond said the good start to 2013 was helped by the warmer weather, which drove sales for electricals such as coolers and fans, while books, newspapers and other discretionary segments also did well.
"This is a great start to the year for the retail sector. Until we see a few more months of this level of growth we will hold off breaking out the champagne, but this is an encouraging start to the year," Mrs Osmond said.
"The latest retail sales data is clearly encouraging," said CommSec economist Savanth Sebastian. "The low interest environment, coupled with buoyant sharmarkets, and ongoing improvement in consumer confidence, is supporting retail activity."
February's strength in retail activity was broad based, with sales rising in 19 out of the 20 categories. Non-food retailing rose by 1.5 per cent in February after a 1.6 per cent rise in January.
The strongest growth was in department stores (1.6 per cent), household goods (1.6 per cent) and newspaper and book retailing, recreational goods retailing, and pharmaceutical and cosmetic and toiletry goods retailing, also up 1.6 per cent.
Frequently Asked Questions about this Article…
A combination of factors drove the strong start: shoppers splashed more cash after a period of weak spending in late 2012 (so some of the rise reflects pent-up demand), official interest rate cuts last year likely encouraged spending, warmer-than-usual weather boosted sales of electricals (coolers and fans) and discretionary items, and consumer confidence and rising house prices helped support activity.
According to the Australian Bureau of Statistics, retail trade rose by an upwardly revised 1.2% in January and a further 1.3% in February. That 2.5% increase across the first two months was the strongest start to a calendar year since 2001, and annual spending growth rose from 3.2% to 4.6%.
February's strength was broad-based: 19 of 20 categories recorded gains. The strongest growth (each up about 1.6%) was in department stores, household goods, newspaper and book retailing, recreational goods, and pharmaceutical/cosmetic/toiletry goods. Non-food retailing overall rose 1.5% in February.
The data are encouraging and suggest interest-rate sensitive parts of the economy are responding to lower rates, but economists and retail bodies caution it's too early to be sure. Much of the early-year lift may be pent-up demand and a few macro risks could reverse the trend, so more months of similar growth are needed to confirm a sustained recovery.
The article highlights three key risks: the ongoing economic crisis in Europe, a prolonged federal election campaign in Australia, and fears the upcoming May budget might target superannuation to fill a budget gap. Any of these could dent consumer confidence and curb spending.
ANZ economist Savita Singh said rising consumer confidence and house prices, along with lower interest rates, suggest households are beginning to respond. CommSec economist Savanth Sebastian added that a low interest-rate environment, buoyant share markets and improving consumer confidence are supporting retail activity.
For investors, the figures are a positive signal for consumer-facing sectors and interest-rate-sensitive industries, indicating recovering demand. However, the improvement is early and could be temporary, so investors should watch coming months' retail data and broader economic risks before assuming a sustained upswing.
Yes — the improvement was broad-based. Sales rose in 19 out of 20 retail categories in February, with particularly strong lifts in department stores, household goods and several discretionary categories, underscoring the widespread nature of the early-year pickup.
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