Retail sector a victim of circumstances

GARRY SHILSON-JOSLING,
October 5, 2016
Australian Associated Press
The trend in retail trade is sadly weak, but entirely consistent with the economic fundamentals.
If the current trend in retail sales continued for a year, spending would struggle to grow by a third of its average for the past two decades.
Even allowing for leakage of sales to online businesses not registered in Australia, and therefore not counted in the Australian Bureau of Statistics figures, that’s confirmation that consumer demand really is soft.
And so it should be, under the circumstances facing the sector.
For one thing, international price pressures are weak, with the price of imported consumer goods up just 0.7 per cent a year in the past decade.
Of course, given solid household income growth, that might just allow consumers to buy more.
But the latest figures show a combination of weak growth in hourly wages rates and sluggish growth in the number of hours worked, both running at around half the pace of recent decades.
As a result, the broadest measure of consumer spending power, household gross disposable income, is stuck in the slow lane.
Over the year to June 2016, this measure of income grew at almost exactly half its pace of the 20 years to June 2015.
No wonder the trend in retail trade is weak.
But retailers are being squeezed from another angle.
Not all of household spending is covered by the retail numbers compiled every month by the bureau.
The items not included are often less subject to international price competition, like household utilities and running costs, health, insurance, and education – all commanding a larger share of the household budget.
And then there’s debt.
Householders are enjoying historically low interest rates at the moment, but since the global financial crisis erupted in 2008, they have become keenly aware that the holiday may not last forever and are behaving accordingly.
At last measure, household consumption spending accounted for 92 per cent of income, compared with 96 per cent in the 20 years ahead of the crisis.
In other words, households are saving – that is either adding to their savings or reducing their debt – twice as much as they were ahead of the crisis.
Against that background, a sluggish trend in retail trade is to be expected.
In fact if the ABS figures showed anything else they would look decidedly odd.