July sales: +1.3%mth (market +0.3%), 16.5%yr. Rate hikes, sentiment slump yet to impact.
The ABS preliminary estimates of official retail sales showed a much stronger than expected 1.3% gain in July. That compares to a subdued 0.2% rise in June and marks the strongest monthly gain since March. The consensus forecast was for a 0.3% rise. The detail shows a broad-based lift with nothing to suggest the monthly gain is a ‘rogue’. That said, rising retail prices undoubtedly account for a sizeable part of the rise, with volumes likely to have been somewhat flatter.
Recall that the ABS retail release now comes in two stages: an early preliminary release with limited detail; and a final estimate that may see some revisions and provides the full range of additional detail.
The limited detail available for July shows a strong rebound for department stores (+3.8%mth, reversing a similar-sized decline in June), and a strong gain for clothing & footwear (+3.3%mth), with robust rises for cafes & restaurants (+1.8%mth), ‘other retail’ (+1.6%mth) and basic food (+1.2%mth). The only soft spot was around household goods which saw a second consecutive monthly decline, down 1.1%mth. That weakness may be a sign that housing-related and big ticket durables spend is contracting but the rest of the detail suggests this is being more than offset by strong gains in both ‘small ticket’ discretionary categories and essentials.
By state, retailers reported strong rebounds in Vic (+1.8%mth) NSW (+1.3%mth), and SA (+1.2%mth), which were all coming off poor June months. WA also recorded a robust 1.6%mth gain. Qld was on the softer side with a 0.4%mth rise but had bucked the wider trend in June, posting a 0.7% gain.
Overall, the July update suggests initial rate rises have done little to slow the consumer. We still expect the RBA’s tightening and slumping consumer sentiment to eventually weigh on demand but that may not come until late in Q3.
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