Australian Retail Sales Beat Estimates on Women’s World Cup

(Bloomberg) -- Australian retail sales rebounded surprisingly strongly in July, suggesting the nation’s heavily indebted households retain spending power even after the Reserve Bank’s 12 interest-rate increases.

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Sales advanced 0.5% from a month earlier, when they declined 0.8% and compared with estimates for a 0.3% rise, Australian Bureau of Statistics data showed Monday. The jump was driven by non-food industries, though consumers spent “considerably” on eating out, said Ben Dorber, ABS head of retail statistics.

“The rise in July was boosted by additional spending at catering and takeaway food outlets linked to the 2023 FIFA Women’s World Cup and school holidays,” Dorber said. Economists expect some further soccer-related spending boost in August data too.

The strength in household spending jars with downbeat consumer sentiment that’s been evident during the RBA’s tightening cycle. Policymakers will now turn their attention to monthly inflation data on Wednesday to further inform their thinking ahead of the September rate meeting.

“Clearly there is still appetite for consumers to spend on services,”said Diana Mousina, deputy chief economist at AMP Ltd. “Given lower-than-expected June quarter wages growth, the slowing in inflation over recent months and the lift in the unemployment rate to 3.7%, we think the RBA will be comfortable keeping the cash rate on hold at next week’s meeting.”

The RBA left the cash rate at 4.1% earlier this month to assess the impact of its rapid-fire hikes that began in May 2022, while keeping the door ajar to further tightening. Retail sales are an important factor in rate decisions given that consumption accounts for roughly 60% of gross domestic product.

Despite today’s strong data, retail sales have broadly flat-lined over the year, rising 2.1% from a year ago compared with a peak of 19.2% year-on-year growth last August.

A potential headwind to spending is the large number of mortgages that were fixed for three years at record low rates during the pandemic and are being switched to higher floating rates, with the majority due in September.

Commonwealth Bank of Australia, the nation’s largest lender, estimates that only two-thirds of the RBA’s 4 percentage points of hikes have so far passed through to its borrowers.

Economist Stephen Wu said CBA lending data showed A$52 billion ($33 billion) of fixed-rate loans are due to expire in the second half of the year following the maturity of A$34 billion in the six months to June.

Today’s retail report showed:

Department stores advanced 3.6%, recording the largest rise, followed by clothing, footwear and personal accessories at 2%

Cafes, restaurants and takeaway food services rose 1.3%

Household goods retailing recorded a second consecutive fall, declining 0.2%

Bloomberg Economics expects weakness through the rest of 2023 as the full impact of policy tightening flows through to household budgets. Economist James McIntyre said the outlook for retail sales remains challenging despite strong employment, rising wages, increasing population growth and house prices climbing once more.

--With assistance from Tomoko Sato and Matthew Burgess.

(Adds economist’s comment.)