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The great retail divergence
Deloitte’s latest Retail Forecasts shows that retail spending has fallen at the fastest rate in nearly 20 years, as COVID-19 cast a cloud over the consumer landscape. Quarterly retail volumes dropped 3.4% in June, with most of the pain felt in the months of April and May.
But it’s not all bad news.
The level of cash washing through the economy from fiscal stimulus is unprecedented. Employee earnings might have dropped over the quarter, but household disposable income actually rose 2.2%, driven by social assistance payments which nearly doubled over the quarter.
Unfortunately, consumers weren’t willing to go out and spend most of this extra cash, with the savings rate skyrocketing to 19.8% as households prepare for what they expect to be further difficult and uncertain times ahead. Households also focused on paying off debts and bills, with RBA data showing the balance of credit card debt accruing interest dropped a whopping 20% since March.
Yet the reluctance to spend has not hurt retailers as much as general consumer spending. The decline in retail spending pales in comparison to the 12.1% collapse in total consumer spending over the June quarter.
The average retail growth rate also hides the complexity of the current retail environment. After slumping in April, spending picked up through the quarter, with June retail sales up 7.4% compared to the previous year. It also looks like that momentum has continued into the September quarter, with spending up 12.0% in July compared to the same month a year prior.
And there is an enormous gulf in retail performance by sector. Restrictions have sent cafes, restaurants and catering services into a tailspin, with spending remaining over 20% lower than pre-COVID levels in the month of July.
Meanwhile, with more people at home more of the time, spending on recreational goods, alcohol, electrical and electronic goods, and hardware, building and garden supplies have surged, with all posting more than 30% gains in the month of July compared to pre-COVID levels.
Chart: Change in nominal retail spending compared to pre-COVID levels
Source: ABS, Deloitte Access Economics
And it’s not just categories experiencing a divergence in spend. Victoria’s second wave COVID outbreak and stage 4 restrictions have sent the state back into a spending slump. Meanwhile, retailers in Queensland and Western Australia continue to benefit from the easing of restrictions.
Looking forward, some parts of retail are expected to take longer than others to recover. Supermarkets, specialty food and liquor, household goods, and other retailing have already exceeded December’s pre-COVID spending levels for spending over a whole quarter. However, it is expected to take much longer for department stores, catered food, and apparel to reach this benchmark.
David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis. David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.