Retail survives crisis, now faces recovery

Retail industry manages to scrape through the worst of the downturn, yet spending in Queensland is set to slide, according to Access Economics

By Jayne Munday | September 9, 2009

Australia’s retail industry has managed to scrape through the worst of the downturn, yet spending in Queensland is set to slide, according to Access Economics.

Access Economics’ retail forecasts for August 2009 reveal retail sales climbed by 6.5 percent in nominal terms between November 2008 and May 2009.

The firm says the strong retail sales performance helped Australia to skirt a technical recession.

"While the lift in the unemployment rate from around 4 percent to around 6 percent (and climbing higher still) signalled a recession for many, the technical definition of two quarters of negative output growth didn’t occur," it says.

The Federal Government’s cash handouts ensured extra money was pumped through the economy, yet retail sales may continue to struggle during the recovery period.

Access Economics still expects a tough 18 months ahead for the retail sector, and says the Government’s stimulus cash was a temporary windfall which is already starting to fade from the retail numbers.

"More generally, the policy stimulus will fade. The RBA has signalled that the next move in official interest rates is likely to be up, and it may occur before the unemployment rate peaks," the firm says.

"The next Federal Budget may also include some decisions which will allow budget balance to be restored in a reasonable period. That means belt tightening from the Feds which will flow through to wider incomes."

While the jobs market appears to be holding up, it will continue to be weak in the short term, according to Access Economics.

"The employment numbers have also masked a more notable contraction in hours worked. Real wage growth is also likely to be subdued going forward while there is also a risk that the sharemarket rebound is overdone and will correct once again in coming months," the firm suggests.

On a state level, Access Economics predicts retail spending in Queensland will decline.

It says the State’s economy is unlikely to fall off a cliff with the end of the commodity boom, but the combination of engineering, commercial and housing weakness is hitting harder than the State has felt for a while.

On a positive note, Queensland remains a great source of potential for Australian growth for the longer term.

The unemployment rate is currently in line with the national average and Access Economics doesn’t expect this to be a source of weakness for the State’s economy.

Queensland’s retail sales have rebounded to reside above the national average, but only marginally.

In the June quarter Queensland saw a 2.4 percent increase in real retail sales (compared with 2 percent nationally) and a 4.4 percent increase across the year to June 2009.

There have been mixed results when it comes to the performance of Australia’s various sectors.

Food retail continues to ride through the crisis with barely a stutter, with sales growth of 4.7 percent comparing favourably with the past trend of 2.7 percent.

Department store sales have appeared to yo-yo in recent months, due to spurts of spending prompted by stimulus payments.

Aside from the evident ups and downs, Access Economics says department stores are achieving reasonably modest sales.

Clothing and soft good retailers have been the keen beneficiary of the recent retail bonanza, reporting real sales growth of 3.7 percent in each of the past two quarters.

However, Access Economics says the month of June saw a notable pull-back in spending, suggesting the next few months may be far leaner

Finally, household goods retailing remains the disappointment across the retail spectrum.

It appears people have been opting to pay down debt rather than buying luxuries such as a new fridge or plasma TV.

Access Economics is considered Australia’s premier economic consulting firm, specialising in analysis, modelling and forecasting.

It provides expert economic advice for business, Government, industry groups and not-for-profit organisation.

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