Retail, manufacturing trade points to slow recovery


Retail spending falls as stimulus dries up, while demand for transport by domestic manufacturers barely increases

Retail, manufacturing trade points to slow recovery
Retail, manufacturing trade points to slow recovery
By Jason Whittaker

Retail spending has fallen as stimulus payments dry up, while the demand for transport services by domestic manufacturers barely increased last month.

While there are some encouraging signs for transport operators in new trade figures, backed by more positive economic news, the recovery for many market sectors is expected to be slow.

The Australian National Retailers Association (ANRA) reports turnover fell 1.4 percent in June, ending a four-month growth spurt thanks to the Federal Government’s stimulus handouts.

ANRA CEO Margy Osmond says the impact of the stimulus packages was always expected to wear off by the middle of the year, but the size of the decline is worrying.

"The cash handouts were like two shots of adrenalin for the retail sector and the effect has almost worn off," she says.

The ANRA estimates about a fifth of the stimulus money, some $4.5 billion, was spent in the retail sector.

"We are now not expecting to see a broad pick-up in retail turnover until Christmas, provided unemployment doesn’t accelerate," Osmond says.

Department stores suffered the biggest falls in June, dropping 8.8 percent, while clothing and soft good retailing declined 7.4 percent. Even the usually resilient food sector fell marginally by 0.7 percent.

Only household goods retailing put on sales, up 2.9 percent across the month.

Queensland retailers experienced the worst falls of any state in June with a 3.5 percent decline, while Victoria (-1.3 percent), South Australia (-1.5 percent) and Western Australia (-1.8 percent) saw more modest declines. The New South Wales market managed to grow marginally.

MANUFACTURING DECLINES EASE
Transport demand by domestic manufacturers barely increased in July, with the deliveries sub-index rising just 0.3 points to 41.6.

Delivery volumes increased in three of 12 sectors, including food and beverages, clothing and footwear, and miscellaneous manufacturing. But there were sharp delivery declines in the basic metal products, textiles, and wood, wood products and furniture sectors.

Overall, manufacturing activity picked up slightly through the month, the Australian Industry Group reports, with the PricewaterhouseCoopers Performance of Manufacturing Index at the highest level since September 2008.

AiGroup Chief Executive Heather Ridout calls the figures "encouraging", in line with better signs from overseas manufacturing markets.

"It is clear that the manufacturing performance in Australia has been deeply influenced by fiscal and monetary stimulus and inventory rundowns," she says.

"Looking beyond the monthly figures, the big question is whether these improvements will be sustained once these stimulatory forces have abated."

But PricewaterhouseCoopers’ Global Leader of Industrial Manufacturing, Graeme Billings, warns manufacturers still face a squeeze on profitability "for some time".

"July’s result, which shows ongoing declines in selling prices combined with a moderate pick-up in input and wages costs, provides clear evidence of this," he says.

"Irrespective of the timing of an improvement in demand for their goods and services, companies will need to focus strongly on reining in unit costs, sustaining cash flows and, where possible, lifting productivity.

Manufacturers need to be looking long-term to prepare for the rebound, Billings says.

"Issues such as the retention of skilled workers, focus on new products and services and building of cost effective supply chains will quickly resume importance as firms’ markets recover," he says.

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