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Retail ‘weak’ as business conditions lift

Retail, shopping, consumerNational Australia Bank (NAB)’s monthly business survey has deemed the state of the retail industry a source of significant concern for the economy.

The September edition has found that Australian retail conditions are trending lower than in August and remain negative, despite improving confidence in all other business sectors.

NAB chief economist Alan Oster said the results underscore doubts about expectations that there’s an imminent rebound in consumer spending on the horizon, an expectation federal Treasury outlined in the Budget in May.

“The sustained weakness in retail conditions should justifiably be raising doubts around expectations for any imminent (and sustained) rebound in consumer spending, although tough competition and other margin pressures are likely behind the result as well,” said Oster.

The results come after weaker-than expected retail turnover figures during August from the ABS last week, which outlined a 0.6 per cent decline in seasonally adjusted sales, the weakest result since 2013.

There are growing concerns in the industry that the upcoming, and crucial December trading period may also be in jeopardy after IBISWorld data released on Monday outlined a likelihood that budgetary pressures would keep purse strings tight over the silly season.

“When it comes to Christmas, people are usually willing to spend even though they are uncomfortable with their finances, [but] we’re starting to see that consumers are getting pushed in terms of how much they can actually spend,” IBISWorld senior industry analyst Nathan Cloutman said.

Increasing power prices, high healthcare costs and rising rental prices are weighing on household budgets moving into December, while global political uncertainty is also putting downward pressure on sentiment, which on the latest Westpac Melbourne Institute index for September is below neutral at 97.9.

There was previously hope expressed by several retail CEOs during full-year earnings season in August that conditions may lift somewhat due to a pick-up in wage growth predicted by Federal Treasury earlier this year.

A Deloitte access economics report from last month outlined similar optimism that the worst may be over for the sector, but NAB economists remain unconvinced that conditions will significantly improve in the near-term.

The NAB survey found that employment conditions dipped slightly in September, but Oster said the index “remains at levels that imply employment growth”, which could put upward pressure on average wages if the labour market tightens.

The NAB survey covers the retail; construction; mining; wholesale; finance, property and business; manufacturing; transport and utilities; and household services sectors.

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