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Retail Forecasts May 2011 - Saving becomes a habit


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The release of Deloitte Access Economics’ Retail Forecasts for May 2011 shows that after stumbling their way through much of 2010, retailers have encountered some further headwinds at the start of 2011. These include:

  • The backbone of retail spending – jobs growth – is starting to show some cracks. Job gains have averaged only 5,000 a month over the past five months.
  • House prices are now falling as consumers anticipate more interest rate rises ahead.
  • Natural disasters (here and abroad) have taken their toll on Australia’s productive capacity in early 2011, and reinforced a more sombre consumer mood.

Retail sales have had a bumpy start to 2011, with handsome sales growth recorded in February (though partly that reflected a post flood catch-up), a fall in sales during March, and then another strong result in the recently released April data.

While jobs growth has been more modest of late, it remains broadly true that income growth in Australia continues at a good rate but willingness to spend that income is lacklustre. The result can be seen in Australia’s savings rate, which has gone from negative in 2005 to a rate of 2.3% pre-GFC, to averaging 9.4% over 2010 (and to 11.5% recorded in the March quarter of 2011)

A rising household savings rate has been a phenomenon across other developed countries too (such as the US and UK), but the trend has been more pronounced in Australia. In part it is the strength of economic recovery in Australia which has provided many consumers with the ability to save (its tough to save money when you don’t have a job). In part its the high level of household debt Australians held prior to the GFC which has scared people and is encouraging them to make inroads into that debt. Speculation about further interest rate rises is also no doubt adding to the cautious mood among consumers.

The result is that retail sales are weak at present, but its not all necessarily bad news looking forward. Australia is, after all, in the midst of an unprecedented resources boom and there will be a range of dividends from that – jobs, wage growth, profits and government revenues.

If the household savings rate remains around its current levels, that would mean consumer spending growth was matching growth in disposable incomes – which would be a handy improvement on recent events.

By financial year, we expect real (inflation-adjusted) retail sales to record 1.3% growth in 2010-11, which would be its worst financial year result in two decades. However, job and real wage gains, along with a levelling out in the household savings rate, is expected to help real retail growth lift to 2.2% in 2011 12 and 3.3% growth in 2012-13.

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