Westpac: First impressions: Australian Retail sales May 2016

From the FXWW Chatroom: Retail sales rose 0.2% in May, a disappointing result. Both Westpac and consensus had been for an moderately improved result given the RBA’s surprise rate cut in May and an associated rally in consumer sentiment. The 0.2% gain along with a slightly weaker revised 0.1% gain in April and a poor ‘mix’ point to continued lacklustre demand most probably more aggressive price discounting among retailers.
Annual growth in retail sales slowed to 3.4%yr, with the monthly trend tracking a materially weaker 2.2% annual pace.
The store type category breakdown showed ‘non-food’ retail sales down 0.1%mth on a combined basis. Basic food retail sales rose 0.7%mth and ‘cafes & restaurants’ recorded a 0.3% gain. The gain in basic food may be a sign that the ‘supermarket price wars’ eased a touch in the month. However, it the broader pattern of weakness in ‘discretionary’ categories and gains in ‘staples’ may also be a sign that Australian consumers are reining in spending. Notable within the non-food categories was a 1.1% fall in household goods retail – a bellwether discretionary category that, given links to housing construction, should instead be seeing decent growth at the moment.
The state split was particularly notable this month with the major non-mining states recording much better gains – NSW +0.7%mth, +4.9%yr; Vic +0.6%mth, +4.9%yr – and the mining states showing pronounced weakness – Qld –0.4%mth, +0.4%yr; WA –0.7%mth, +0.5%yr. The latter implies a material contraction in per capita sales over the last year.
Note that the retail survey has been a problematic indicator for broader consumer demand in recent years. Nevertheless, the May update still constitutes a disappointing read and points to downside risks both to consumer spending and price inflation.

Westpac: First impressions:Australian international trade May 2016
Australia’s trade deficit deteriorated a little in May, widening by $0.4bn to $2.2bn. That still represents an improvement on results over much of 2015 and in early 2016.
The May result fell short of forecasts (market median -$1.7bn and Westpac -$1.8bn). Note, April’s deficit was revised to $1.8bn from an originally reported $1.6bn.
Imports were as anticipated, up 2.2% (Westpac f/c 2.3%), +$620mn. Much of this strength likely reflects higher prices – on a lower dollar, down 3.8% on a TWI basis, and higher fuel prices. The detail reports that: fuel imports rose by $170mn, +9%; capital goods rebounded partially, up 3.8%, +$180mn; and gold imports jumped 29%, +$120mn.
Export earnings disappointed, increasing by only 0.7% (Westpac f/c 1.7%), +$190mn. By major movers: coal exports advanced strongly, +$295mn, on higher prices and volumes; metal ores surprised to the high side, recovering by a further $210mn; but results elsewhere were generally mixed.
For the June quarter to date, the average monthly trade deficit is tracking at $2.0bn, a narrowing from a $2.9bn average for Q1. The improvement is centered on a bounce in the terms of trade, our calculations suggest. Real net exports, which added a hefty 1.1ppts to growth in Q1, on a jump in export volumes, are more likely to make only a small positive contribution in Q2.
07 Jul Deputy Governor Grant Spencer will speak about macro-prudential policy and housing market risk. The 5:30 pm event is private, but text of the speech will be published online.
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