Retail Forecasts August 2011 – Retail waiting to be rescuedDOWNLOAD
2010-11 proved to be a disastrous year for retail. The year saw real retail sales grow by just 1.3%, the worst result for 20 years. Income growth was solid enough through the year, though suffered a major setback from last summer’s floods and cyclone. But the more important theme over the past year has been less willingness to spend, or at least less willingness to spend on retail.
That weak performance is seen across most categories of retail at present. Only ‘other retailing’ (including newsagents and chemists) is showing a good trading performance over the past year, with sales up 5.1% in real terms. Household goods are showing some signs of life with a reasonable result in the June quarter. Elsewhere the retail landscape has been barren with food sales in real terms at the same point as a year ago, while clothing and footwear, department stores, and cafes and restaurants have all lost ground.
Retailers now face the prospect of going from bad to worse. Sharemarket falls have eroded some wealth and seen consumer confidence plummet further. Recent data on jobs growth has also been less than encouraging.
The implications from the financial market volatility and further deterioration of consumer confidence in August are yet to be seen in the retail sales data. When they do appear its unlikely to be pretty, while the next few months look like being subdued ones for retail at best. And there is still a real risk of further global weakness in the short term which would force the RBA to cut interest rates.
Yet pockets of the Australian economy are still going very strong and this will support a reasonable rate of GDP growth in 2011-12. That should allow jobs growth to re-gather pace over the next year and provide a better support for retail spending.
By financial year, following the two-decade low of 1.3% real (inflation-adjusted) retail sales growth in 2010-11, there may be a modest improvement to 1.5% growth in 2011-12, with the bulk of that growth occurring the other side of Christmas. A more solid rate of jobs growth and easing of consumer caution might then see retail growth lift to 3.3% in 2012-13.
Only three States passed the very low benchmark of having real retail sales in the June quarter of 2011 higher than it was a year earlier. Predictably they were led by Western Australia where there is spillover from a very healthy mining sector. A booming mining sector is also propelling Queensland forward, as it otherwise slowly recovers last summer’s disasters. The other State to show retail growth is perennial over-achiever Victoria, assisted by solid population gains. All other States and Territories have gone backwards in the past year, thanks to both a lack of jobs growth and consumer confidence. Australia’s high-growth/low-growth divide is likely to remain in place for at least the short term, though non-mining States will be breathing a sigh of relief that interest rate rises are off the agenda, at least for a while.