Retail Forecasts: Retail recession – the sequel

Retail trade data for the June 2024 quarter has effectively marked a return to retail recession conditions – the 2024 sequel to retail’s 2023 horror show.

The indicators don’t make for pretty reading. In six of the last seven quarters, real retail spending has declined. On a per capita basis the statistics only look worse. Real per capita retail spending has contracted for the last eight quarters and is now 2.5% lower than June 2023 and 6.3% lower than June 2022.

These dire indicators are consistent with the poor state of the Australian economy. GDP growth is slow, labour market weakness is becoming more apparent (particularly in consumer facing industries such as Retail and Hospitality), and business insolvencies are rising - the number of companies entering external administration for the first time increased by 44% in July 2024 when compared to July 2023. 

Retail has been particularly hard hit, with negative growth of 0.6% in real spending over the year to June. Consumers have continuously gravitated towards mid-year sales and good discounts, putting pressure on retailers to discount or risk losing business. Over the June quarter Household goods was the strongest performer in volume spending, thanks to heavy discounting, though this came at the expense of other retail categories like Apparel and Food retailing. 

Chart 1: National retail turnover (year-to)

Source: ABS Retail Trade; Deloitte Access Economics.

But there are some rays of sunshine poking through the dark clouds. Cost of living relief is being rolled out to households in the form of energy bill relief, and tax cuts have boosted household disposable income. The anticipation of  these measures has supported a better retail sales performance through the months of May and June. 

The period from now to Christmas is still expected to be a difficult one for retailers, but perhaps less painful than it has been. As with most horror sequels, the characters are generally more prepared, and the plots generally more predictable. 

Retailers are getting used to seeing a consumer group that is mostly cautious and value conscious, but where a cohort (generally older and mortgage free) does still have money to spend. A tight focus on cost control, and periodic swings to discounting, remains the mantra. Technology investment is being further explored to drive efficiencies, with retailers’ hiring intentions dropping back.

Looking forward, we still anticipate cost of living support and moderating inflation to stimulate higher levels of consumer confidence and stoke consumer spending. As a result, ‘retail recession – the sequel’ should be short and shallow. 2025 and 2026 are expected to show further improvement and a return to more solid growth. Real retail turnover growth is predicted to strengthen from -0.3% in 2024 to 1.5% in both 2025 and 2026.

Stronger real retail sales growth will also be supported by price moderation, as broader inflation tracks down. Retail prices may move from above normal gains of 4.3% in 2023 and 2.8% in 2024, to more normal price growth rates of 2.6% in 2025 and 2.4% in 2026.

This newsletter was distributed on 29th August 2024. For any questions/comments on this week's newsletter, please contact our authors:

This blog was co-authored by Michelle Shi, Senior Economist at Deloitte Access Economics

Click on the links below to read our previous Weekly Economic Briefings:

• Employment Forecasts – Jobs: growth and stagnation (22 August)
  
• World Competitiveness Rankings 2024  (13 August)
• CFO sentiment: Emerging from the storm (06 August)
• Core inflation falls in pivotal CPI release (31 July)