Retail spending per capita still going backwards, housing approvals supported by detached houses and not units
(AMP Capital) The long-awaited Australia’s retail spending data today came out in line to slightly below economists’ estimates of a small bounce back in volume. The 3Q24 retail report is an important data point, because it gives us the first look into how Aussies spent extra disposable income from tax cuts and transport/energy bill relief measures. On one hand, total retail volume increased 0.5% over the quarter as expected – a much larger rise than the previous 2 consecutive 0.4% quarterly contraction.
On the other hand, the September nominal retail revenues was roughly flat – the small 0.1% monthly rise is smaller than consensus forecast of 0.3% and the previous month’s increase of 0.7%. And most importantly, spending volume per person fell for the 9th straight quarter and is now at its lowest level since September 2021. While retail sales growth can see some upside from here, retail revenues so far are still supported by inflation & population growth, and clearly people haven’t splurged their tax cuts on goods & services!
The September data follows a predictable pattern over the last 2 years: customers rely on promotional events and tend to cut back after splurging during warmer weather months. In September, department store, food, liquor and clothing sales all saw pullbacks after large rises in August. Meanwhile there was some small tickup in household goods (+0.5%mom) and dining out & takeaway food (+0.4%mom).
As a result, monthly movements in retail sales can be noisy and it’s better to look at the longer-term trend to assess the state of Australian households. On a quarterly basis, retail sales volume has now picked up across most categories, especially in discretionary items such as clothing (+1.9%qoq), department stores (+1.4%qoq) and household goods (+1.0%qoq). This is unsurprising, because 1) many retail items saw price declines (aka deflation!) over the quarter, boosting household purchasing power; 2) spending in these categories have been depressed for quite some time; and 3) solid wages growth, strong employment landscape, new tax cuts and various government rebates have increased household disposable income.
However, population growth of around 2.1% over the year to September remains one of the big drivers in the recent rebound in retail sales growth (both in nominal and volume terms). While nominal retail growth is still up 2.3% over the year, retail volumes is virtually flat (+0.2%yoy, red line) and spending per capita continues to be negative (-1.9%yoy, yellow line). This is the longest and deepest retail per-capita recession in the history of the series.
Today’s building approvals data showed a 4.4% monthly rise, slightly higher than consensus forecast for a 2.1% increase, reversing the -3.9% fall last month. September saw rises in both detached house (+2.4%mom) and apartment (+8.4%mom) approvals.
Overall building approvals seemed to have pick up from the trough and is running at about 170k dwelling units over the last 12 months. More dwelling approvals is always a welcomed trend because the key to solving the current housing (un)affordability issue is to reverse the long-running undersupply trend.
However, recent rebounds in approvals have been driven by detached houses; while units’ approvals remained subdued – hence the level of approvals is much lower than the peak of 240k per annum during the 2016 apartment boom. It’s also lower than the Housing Accord’s target of 240k dwellings per year.
As new dwelling costs remain elevated (+1.0%qoq as seen in yesterday’s CPI report), building completions also remain much lower than approvals and it’s hard to see a quick rebound in building completions anytime soon. Hence the housing shortfall is expected to remain significant in the near term.
Analysis by My Bui, Economist AMP Superannuation and Investments
