A good note from RBS today:
Headline retail sales continued to improve in September. Retail sales rose a solid 0.4% in September, building on the strength in July and August. The rise was in line with expectations (RBS: +0.4%; market: +0.4%). For the quarter, nominal sales rose 1%, following the 0.6% rise in Q2, and the strongest rate since Q3 last year. Annual growth is still only running at only 2.3% given earlier weakness.
The strength in sales in September was driven by household goods and cafes, takeaways and restaurants. Household goods rose a strong 1.0%, while cafes, takeaways and restaurants again grew strongly, up 0.9%. Food sales rose only modestly (+0.2%), while clothing and department store sales were basically flat.
The underlying trend in sales is now improving convincingly. Large-store retail sales, which the Reserve Bank regards as a more reliable read on the trend, rose by 0.7% in September after an upwardly revised 0.5% increase in August, the best result since January this year.
Sales in New South Wales continue to improve. Sales rose by 0.6% in New South Wales, the third straight rise following a dismal performance over the first half of the year. Sales were also strong in South Australia (+1.0%) and Queensland (+0.5%), but broadly flat in Victoria (flat) and Western Australia (+0.1%), although the trend in Western Australia remains very strong.
Quarterly real retail sales also rose solidly and will make a modest contribution to Q3 GDP growth. Real retail sales rose by 0.6% (RBS: +0.6%; market +0.6%) after a 0.2% rise in Q2. Despite the very recent strength real sales are running at just 0.2% higher than a year ago, due to the weakness earlier in the year. Sales look to have added 0.1pp to Q3 GDP after broadly no contribution in Q2, while the sharp recovery in motor-vehicle sales to households (+10% separately reported) after the supply disruptions resulting from the Japanese tsunami will also add to GDP growth.
Growth across the different categories of real retail sales was very mixed. The strength in real sales was concentrated in food (+1.4%), household goods (+1.5%), "other" retailing (+2.5%) and cafes and restaurants (+1.2%). Department store sales fell 2.3%, while clothing sales fell a massive 8%. This fall was driven by weakness in nominal sales in Victoria (-10%), New South Wales (-5%) and Queensland (-4%), but looks implausible – with the fall in both nominal and real clothing sales at the national level the largest on record barring Q3 2000 when the GST was introduced.
Consumer spending looks to be better than expected in Q3. The improvement in retail sales comes despite the fact that retailers continue to lose market share to overseas on-line competitors and consumer surveys show that households remain fairly pessimistic about both their own financial situation and the outlook, albeit slightly less pessimistic that they were a few months ago. The sharp improvement in car sales will also make a solid add to consumer spending growth in the quarter. There is less information on spending on services, but services spending has grown at a much stronger rate than goods spending over the past couple of years.
