Retail spending rebounds with small rise in May

Consumer spending rose slightly in May after a soft patch, but fell just short of forecasts.

Despite the overall retail rise, department store sales fell.

Australian consumer spending rebounded in May from a soft patch the previous month, as expectations rose that the Reserve Bank may be readying interest rate cuts.

Retail sales rose by 0.1 per cent in May, supported by stronger spending in cafes and on household goods while department store sales fell, the Australian Bureau of Statistics said.

The rise fell just short of market expectations of a 0.2 per cent rise.

The result lifted the Australian dollar to a two-month high of US70.43 cents.

The retail trade figures were released at the same time as data showing a 1.1 per cent decrease in job vacancies for the three months to May.

ABS survey director Ben James said the retail figures were a mixed result across the industries.

Spending on household goods lifted 0.5 per cent, but the cash spent on clothing, personal accessories and footwear fell by 0.2 per cent.

Retail spending lifted in Victoria, South Australia, ACT and the Northern Territory, but fell everywhere else, including a 0.1 per cent decline for economic powerhouse of NSW.

Online retail turnover contributed 6.2 per cent to total retail turnover in original terms in May 2019, a rise from 5.7 per cent in April.

Weaker consumer spending has dragged on the economy since mid-2018, slowing economic growth sharply.

AMP Capital chief economist Shane Oliver said spending will remain weak even though RBA interest rate cuts and early signs of a housing market recovery should lift consumer sentiment.

“Retail sales growth will be weak going forward given the lagged negative wealth effect flowing from the fall in house prices since 2017, and likely very constrained house price growth ahead, continuing low wages growth and an upwards drift in unemployment,” Mr Oliver said.

The RBA cut interest rates for the second time in as many months on Tuesday, moving to bolster the resource-rich economy against an increasingly murky global outlook.

The RBA lowered its official cash rate to a record low 1.00 per cent, down from 1.25 per cent, adding to a cut in June, with policy makers highlighting the dispute of over trade between China and the US that threatens to crimp global exports.

RBA Governor Philip Lowe said that while the economy has not fallen into a hole, the pace of economic growth needs to accelerate to tighten the job market, encourage wages growth and return inflation back to the 2-3 per cent target band. He has left open the prospect of further interest rate cuts if the economy does not improve.

The Coalition government this week got its first big legislative victory since winning the May election, securing agreement with enough MPs for a $158 billion tax cut package that could help to stimulate the economy.

Australia’s economy has slowed sharply since mid-2018 as weak wages growth and record household debt have combined to damp consumer spending. Falling house prices have also put the brakes on spending, prompting the RBA to sharply revise down its outlook for the economy this year.

The central bank will publish revised economic forecast in August, where its expectations for GDP growth and inflation and unemployment are likely to be well short of target. That could frame the case for further interest-rate cuts.

Dow Jones Newswires, AAP