Australia's second-quarter retail sales brighten prospects for economy

  • The Australian Bureau of Statistics (ABS) showed retail sales for the June quarter jumped 1.2 percent in inflation-adjusted terms, the best outcome in a year.
  • That data greatly improved the outlook for second quarter gross domestic product growth, given household spending accounts for around 57 percent of annual economic output.
Cotton On fashion retailer in the Manly Corsol area in Sydney, Australia.
Brendon Thorne | Bloomberg | Getty Images
Cotton On fashion retailer in the Manly Corsol area in Sydney, Australia.

Australian retailers enjoyed their best sales in a year last quarter as discounting drove goods off the shelves, suggesting consumer spending helped the economy maintain momentum.

Friday's figures from the Australian Bureau of Statistics (ABS) showed retail sales for the June quarter jumped 1.2 percent in inflation-adjusted terms, the best outcome in a year.

That beat expectations of 0.8 percent and followed a very sedate 0.2 percent gain the previous quarter.

The revival greatly improved the outlook for second quarter gross domestic product growth, given household spending accounts for around 57 percent of annual economic output.

Retail sales likely added almost A$1 billion ($736.82 million) to GDP last quarter and may have contributed 0.6 percentage points to growth compared with a meager 0.2 percentage points in the first quarter.

"The Q2 rise in real retail sales is encouraging especially when the evidence suggests that non-retail spending, excluding vehicles, has also been fairly strong," said Paul Dales, chief economist at Capital Economics.

The data will also provide some comfort to the Reserve Bank of Australia which has repeatedly singled out household consumption as a "continuing source of uncertainty."

Still, there were no signs of inflation in the report as retail prices fell 0.1 percent in the quarter.

For the month, retail sales gained 0.4 percent in June, unchanged from May's pace and compared with a 0.3 percent rise economists had predicted.

The gains, helped by financial year-end sales and winter shopping, were broad-based across sectors with big jumps in clothing, footwear and personal accessory as well as household goods and food.

Consumer spending has been under pressure from record-high household debt and sluggish wage growth, which has in turn weighed on inflation — the single biggest reason the RBA is in no rush to raise interest rates from record lows.

The central bank is all but certain to keep rates at 1.5 percent at its monthly policy meeting next week.

Futures markets do not fully price in a hike until end of next year.

With the central bank on its steady path, the Australian dollar stayed put at $0.7364.

Analysts were also unsure whether June quarter's momentum can continue given wage growth is crawling near record lows and an ongoing slowdown in the once-booming property market is seen hurting consumer confidence.

House prices have fallen for successive months since late last year as banks tightened their lending standards amid damaging revelations of some of their business practices.

"Although the data beat our expectations, it does come off the back of a very weak March quarter," said Sarah Hunter, head of Macroeconomics Australia at BIS Oxford Economics.

"Broadly speaking, growth remains very patchy and given the ongoing weakness in wage and other income growth we expect this to continue through the rest of this year."