Retail sales fell 0.6% in May after a surprisingly strong 1.2% rise in April. That follows similar volatility in March (–0.4%mth) and Feb (+1%)
While much of the volatility is weather-related with floods and cyclones impacting both demand and prices, we suspect there are also problems with seasonal adjustment due to these shocks and the legacy of the extreme volatility seen during the fiscal payments to households in 2008-09.
The April report sharply revised estimated trend growth in retail sales from a sub-2% annual pace to one closer to 5% – only ½% below long run average.
Today’s release takes it the other way, lowering trend growth to a 3.8% annual pace.
That’s more in line with our thinking. Sub-2% was way to weak, implying near flat nominal sales per capita. But growth near average was far too upbeat.
The middle ground pace is still a subdued one.
The store category mix would seem to back up this ‘technical correction’ explanation. All categories bar one recorded declines with food retail down 0.4%mth (price shifts may have been a factor); department stores down 1.4%mth (but after a 3.5% jump in April); clothing down 1.8%mth; household good retail down 0.2% and ‘other retail’ down 1.6%mth (after a 2.1% jump in April). Cafes and restaurants were the only segment to rise with a 0.4%mth sales gain.
By state, there were some hints of a transition with sales softer in NSW (–1.2%mth) and Vic (–1.1%mth) but flat in Qld and up 0.8%mth in WA.
However, warnings about volatility and data quality should be read in triplicate for state level retail estimates.
Aust May dwelling approvals drop 7.9% led by big drop in apartments; private sector houses down just 0.7%
Approvals were much weaker than expected with a 7.9% fall in May taking total approvals down 14.5%yr.
However, weakness was concentrated in the volatile ‘private sector units’ component which covers large and often lumpy multi-unit apartment developments.
Approvals in this segment slumped 20.1%mth and were down particularly sharply in NSW and Vic where the segment is much larger.
The more stable private sector houses component recorded a miler 0.7%mth decline and is trending lower at a moderating pace (0.7%mth vs 1%mth earlier in the year and –2%mth in mid to late 2010).
That gives some comfort that the May fall is not necessarily part of a significant new round of weakness.
However, the caution here is that, volatility aside, the private sector units segment had been notably more resilient to date (down just –0.3%yr vs –11.6%yr for houses).
This may partly reflect longer lags in the financing and approval process for this segment. As such we may still see some lagged weakness in ‘units’ going forward.
By state, the apartment drop was concentrated in NSW and Vic – private sector house approvals in these states were actually quite positive, up 3%mth and 5.2%mth respectively (remarkably, private sector house approvals in NSW were up 1.7% on a year ago).
Qld was a little disappointing – approvals rose but by only 1.1%mth with private sector house approvals edging lower. The ‘flood rebuild’ effect has been small to date though that may be because some of the work is bypassing the approval process.
In the past, Qld approvals have been somewhat more prone to upward revision than other states as well.
Details
Private houses –0.7%mth, –11.6%yr
Private ‘units’ –20.1%mth,–0.3%yr
NSW –15.6%mth, –22.3%yr
Vic –18.5%mth, –11.9%yr
Qld +1.1%mth, –21.9%yr
WA +3.0%mth, –10.3%yr
Alteration & additions * –1.3%mth, –0.5%yr
Non-residential * –3.0%mth, –2.2%yr
(* value)
Strategy
For the AUD
After the solid ISM and strong closer on risk markets, traders were again buying risk this morning. However, the AUD did underperform ahead of the data. After an early high at 1.0790, we were trading around the 1.07550/60 level ahead of the data. We quickly slid down to a low of 1.0722 but have since bounced. The overall bid tone to risk market continues with the NZD popping above the 0.8300 level yet again. This is arguably going to limit the downside for AUD versus the US$, but no on crosses.