Retail conditions worst since ’91

Consumer spending has been dwindling for the past 12 months triggering the nation’s poorest retail sales figures in 28 years.

The RBA has been cutting interest rates in the hopes of raising consumer spending which would help struggling retailers. Picture: AAP

Australia’s retailers are battling the toughest trading conditions since the economy last sunk into recession way back in 1991, raising risks of accelerated job shedding across the sector and keeping the brakes on economic growth.

Retail sales volumes rose by just 0.2 per cent in the second quarter after a 0.1 per cent fall in the first quarter. Sales for the year to June 30 rose by 0.2 per cent, the worst result in 28 years, according to the government statistician.

The data highlighted a key reason why the Reserve Bank of Australia came off the sidelines in June for the first time since 2016 to cut official interest rates, backing it up with a second cut in July.

Consumer spending began to weaken sharply in mid-2018 as soaring household debt, flat wages growth and tumbling house prices combined to keep wallets shut across the economy.

Weak consumer demand is expected to ensure tepid economic growth in the second quarter. Car sales are also sliding, showing a lack of demand for big -ticket items.

The RBA is likely to announce downgrades to its economic forecasts next week, while retaining a message that further interest rate cuts are likely.

RBA governor Philip Lowe is also likely to revisit the theme that interest rates alone can’t restore the economy to stronger growth, and government spending on infrastructure also needs to be brought forward.

Overall, policy makers will remain watchful over coming months to see if lower interest rates and income tax cuts rolled out at the start of July are able to put some pep back into the economy.

The RBA is expected to keep its policy powder dry at a monthly board meeting on Tuesday, but economists are tipping at least one more interest rate cut before the end of the year, with a follow-up in early 2020.

Dr Lowe told markets last week to expect record low interest rates for a long period to come.

The retail data was not all bad, with sales rising by 0.4 per cent in June, led by a big jump in clothing sales.

Whether that was related to falling mortgage interest rates or a mid-year cold snap is unclear, but it offers some hope that store sales will improve over the months ahead.

Still, headwinds are likely to remain stiff with the latest batch of wages growth data pointing down not up. Wage agreements negotiated at the enterprise level are much weaker than increases agreed to a year ago, according to government data.

“While the June (retail) report does not show a further worsening it underscores the very weak conditions across Australia’s retail sector over the last year,” said Matthew Hassan, senior economist at Westpac.

“The key question going forward is the extent to which policy stimulus flows through to spending in the second half of the year.”

Retailers have been shedding staff in the past year, and the second quarter suggests there is more to come, with the National Australia Bank’s monthly business survey showing retail at the bottom of the heap.

Major retailers this week have been openly describing conditions in retail as in recession. Department stores sales posted their third fall in four months in June, with the sector continuing to feel the heat of soft demand and accelerating online competition.