Although Australia's February retail sales fell slightly short of the consensus forecast, the latest rise marked the 10th straight month of growing sales for the sector. According to the Australian Bureau of Statistics, retail turnover increased by 0.2 percent month over month versus economists' projections of 0.3 percent.
Although February's number fell slightly short of expectations, this performance followed January's sales growth of 1.2 percent, which was the strongest gain in nearly a year. Given this context, one might expect consumer spending to be more restrained in the month that follows.
On a trend basis, which removes the seasonal adjustment, February sales rose 0.7 percent, perfectly matching the increases in each of the two preceding months. In trend terms, sales grew 5.9 percent year over year.
Household goods were the largest contributor to this performance, with sales increasing by 2 percent. This category should continue to be a beneficiary of Australia's building boom, as home sales spur demand for housewares, furniture and appliances. And that offers a perfect example of how strength in the real estate sector can flow through to other areas of the economy.
Sales from other retailing, a category which includes pharmaceutical, cosmetic and toiletry goods, as well as newspapers and books, among other subgroups, rose 1.9 percent.
Sales at cafes, restaurants and takeaway food services climbed 0.1 percent, and clothing, footwear and personal accessory retailing also rose 0.1 percent. These results were partially offset by declines from sales at department stores, down 4.7 percent, and food retailing, which was lower by 0.2 percent.
Over the trailing three-year period, retail sales have grown an average of 0.3 percent per month, while over the trailing year retail turnover has averaged 0.5 percent per month. Despite February's result, the retail space still ! clearly has near-term momentum, which is crucial as Australia's policymakers are anxious for growth to emerge in one of the non-mining sectors.
The AUD270 billion retail sector accounts for 17 percent of Australia’s AUD1.5 trillion in annual gross domestic product (GDP) and is the second-biggest employer, providing 10 percent of the country's jobs.
While consumers were still opening their wallets in February, there could be a possible dip in spending in subsequent months. The latest reading from the Westpac/Melbourne Institute Index of Consumer Sentiment was essentially flat, rising just three-tenths of a percentage point in April, to 99.7.
Westpac characterized the result as a mild surprise, as it had expected a stronger rebound from March's 0.7 percent decline. That month, consumers were reeling following the announcement of mass layoffs at large firms such as the struggling airline Qantas. Economists had expected news of February's sudden jump in employment–the economy added 47,300 jobs that month–along with the booming housing market would offset earlier doldrums.
Although April's reading is only slightly below the three-year average of 100.8, it's still down about 10 points from the rosy sentiment that prevailed last September during the country's federal elections.
Among the sub-indexes, families' assessment of their present financial condition versus a year ago showed marked improvement, up 6.7 percent month over month and 10.1 percent year over year. And their outlook for the coming year had improved 2.2 percent sequentially.
Respondents were also optimistic about the economy's performance over the next 12 months, with the reading for this sub-index jumping 10.5 percent month over month. Their five-year outlook, however, remains somewhat gloomy. This measure declined 4.2 percent month over month and is down 12.3 percent from a year ago.
And counterbalancing the recent performance of household goods retailers, consumers! ' views! on whether now is a good time to buy a major household item slumped by 8.7 percent to its lowest level since May 2012.
News that the country's housing market could be forming a bubble is also weighing on consumers. The index tracking views on whether now is the right time to buy a dwelling fell 3.9 percent and is now down 20 percent from its peak in September.
While some of these results suggest more challenges ahead, it's important to note that consumer sentiment tends to be a lagging indicator. As Australia's economy continues to find its footing, these measures will improve accordingly. Although consumer sentiment has fallen in a couple of key areas, these results may not comport with actual behavior, such as retail sales, which is what we'll be watching most closely.
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