Retail Forecasts, May 2013 – Taxing timesDOWNLOAD
7 June 2013: The retail environment remains an extremely competitive one. The March quarter 2013 retail sales survey results were stunning (growth of 2.2% in real terms was the strongest quarterly result for six years). Over the past year, non-food retailing has overtaken food retailing as the stronger growing segment – the outcome one might expect in an environment of record low interest rates.
Yet, that rate of sales growth is unlikely to be sustained for any length of time, with data for the month of April confirming much more modest retail sales growth in that month.
The underlying fundamentals don’t support it. Employment growth is registering a pulse but it’s a faint one, and in all likelihood the unemployment rate will drift up further over 2013. That’s not a strong grounding for robust retail sales growth. Consumers have also become less confident over the past couple of months as the Reserve Bank has started to push the panic button, and as that symbol of economic supremacy (the Aussie dollar being worth more than the US dollar) has quickly slipped away.
Over time, those low interest rates and a lower $A are a combination which should work in the favour of Australian retailers, in large part as the housing cycle turns and favours more spending on consumer durables.
This year’s Federal budget was a reminder that there are unlikely to be too many easy yards for retailers over the years ahead. A range of measures in this Budget will cut into disposable income, particularly form 2014-15. That won’t be devastating for consumer spending, but it will limit the upside which might otherwise have been seen from an expected peak in housing activity.
It’s also true that the days of a tax cut every Federal budget to put the icing on the cake of a healthy retail environment are now long gone. This may the first of several years of negative surprises on that front.
By financial year, real (inflation-adjusted) retail sales growth is expected to record a gain of 3.0% in 2012-13, driven largely by the strong period seen at the start of 2013. Retail growth may then moderate a little in 2013-14 (2.8%), before improving to 3.0% again in 2014-15 as employment growth moves to a higher path.
Over 2012 the resource regions of WA, Queensland and the NT were showing all other jurisdictions a clean pair of heels in terms of retail sales performance. But so far 2013 is starting to bring a different story. The stunning retail growth seen in the Mach quarter was not led by resources but rather by low interest rates. The more interest rate sensitive economies of NSW, Victoria and the ACT led retail growth, along with a long overdue rebound from Tasmania.
Over the next couple of years retailers in WA and Queensland will face challenges as major projects start to detract from economic activity rather than add to it. Still, there will be some offset coming through the operation of expansion projects, and it is likely that population growth will still favour these States. That suggests a tightening in the band of future retail outcomes across States, rather than the ladder being tipped upside down.
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