September retail spending “encouraging”, non-Vic states provide surprises

Summary: Retail sales up 1.3% in September, more than expected 0.3%; up 1.7% on annual basis: increase “encouraging” but overwhelmed by July, August weakness; better than expected lift in NSW, strong gains in non- lockdown states; largest influence on month from household goods.

Growth figures of domestic retail sales have been declining since 2014 and they reached a low-point in September 2017 when they registered an annual growth rate of just 1.5%. They then began increasing for about a year, only to stabilise at around 3.0% to 3.5% through late 2018 before trending lower through 2019 and early 2020. Monthly changes have been exceptionally volatile since then.

According to the latest ABS figures, total retail sales increased by 1.3% in September on a seasonally-adjusted basis. The gain was larger than the 0.3% increase which had been generally and in contrast to August’s 1.7% fall. On an annual basis, retail sales increased by 1.7%, up from August’s comparable figure of -0.7%.

“The increase in retail spending in September was encouraging but barely put a dent in the quarterly nominal result of -4.4%that was driven by the weakness in July and August,” said ANZ senior economist Adelaide Timbrell.

Commonwealth bond yields jumped on the day, not because of the sales figures or September’s private credit figures but because the RBA did not defend its April 2024 ACGB yield target. By the end of the day, the 3-year ACGB yield had gained 7bps to 1.40%, the 10-year rate had jumped 25bps to 2.12% while the 20-year yield finished 22bps to 2.63%.

“The state breakdown showed surprises on two fronts: a better than expected 2.3% lift in New South Wales and strong gains in ‘non lockdown’ states that more than offset a sizeable 2.1% decline in Victoria…The response in New South Wales is promising for October; our card data is already suggesting the further easing in restrictions has seen activity flourish through the month,” said Westpac senior economist Matthew Hassan.

Retail sales are typically segmented into six categories (see below), with the “food” segment accounting for a little nearly 45% of total sales. However, the largest influence on the total during the month came from the “Household Goods” segment which increased by 4.3% over the month and thus contributed 0.78 percentage points of the 1.3% increase. Food sales fell by 1.4% over the month and deducted 0.63 percentage points.

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