(RTTNews) - Australian retail spending remained weak in the September quarter, although not quite as bad as we or the market expected, according to the analysts at Westpac Bank. Sales volumes have now fallen for three consecutive quarters, the first time this has happened since the 1991 recession (though that was a significantly steeper decline).

The decline in sales volumes through the September quarter comes as no surprise. Consumers’ purchasing power had been strangled by the impact of high effective interest rates, high food prices, and a housing market in reverse. And, even though petrol prices began to fall in July, on average fuel prices were 4.6 percent higher in Q3 than in Q2.

In this environment, discretionary spending has been hit hard, with the automotive sector experiencing its fair share of the pain. In the three months to September, motor vehicle sales fell 3.1 percent, to be down a whopping 13.4 percent in the past year. But while that has helped lead overall sales volumes down, core sales volumes have also been weak. In fact, spending on the staples, particularly supermarket and grocery items, went backwards for the second consecutive quarter in September, to be down 3.3 percent on a year ago.

Bucking the trend was an unanticipated lift in appliance spending, with volumes up 6.1 percent (s.a.) in the quarter, though the dollar value was down. This supports recent anecdotes of heavy discounting, although we note that there is little evidence of this happening in other sectors during the September quarter. And any bargains there are to be found may be short-lived with the diving currency raising the cost of imports.

On the month, sales were weaker than we expected and, somewhat disconcertingly, on the core sales side. We had anticipated a reasonable pick up in motor vehicle sales for the month given strong car registrations data. While that came through, with vehicle sales up 3.5 percent in the month, core sales were much weaker than we expected, falling 0.5 percent. The biggest falls were in department stores (down almost 4 percent) and clothing and soft goods sales (down almost 5 percent).

By region, the sales trends continue to vary. Most of the weakness is still in Auckland, the Remainder of the North Island and the Remainder of the South Island. Meanwhile, the trend for Wellington is flat, and is rising for Waikato and Canterbury. It seems the dairy-related patchy growth story is still intact.

In coming months, retail spending is set for a fillip. Personal tax cuts kicked in from 1 October; petrol prices are down 25 percent from their peak; and lower interest rates mean that the average homeowner will now be refixing their mortgage at a lower rate than before. Combined, these factors are freeing up cash just in time for Christmas. On that basis, the temptation will be to take a pick-up in spending as a sign that action by the RBNZ and the government to date has turned the fortunes of consumers (and hence the overall economy’s). However, come early 2009 we expect the weight of falling house prices, high debt levels, and rising unemployment will ensure that consumers crawl back into the hole they fell in earlier this year. Moreover, our expectation is that they will stay there for some time to come. Our latest set of forecasts released earlier this week puts growth in consumer spending at 2.0 percent for calendar year 2008, and just 1.1 percent in calendar year 2009.

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Posted in Categories: Australia, Economy, New Zealand, Releases.

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