Retailers enjoy best start in 12 years

March 17th, 2013

Retail Trade; Building Approvals; Services gauge

  • Retail trade rose by 1.3 per cent in February after rising by an upwardly revised 1.2 per cent in January (previously 0.9 per cent). Annual spending growth rose from 3.2 per cent to 4.6 per cent.
  • The 2.5 per cent increase in retail trade in the first two months of the 2013 marked the strongest start to a calendar year since 2001.
  • Non-food retailing rose by 1.5 per cent in February after a 1.6 per cent rise in January. Sales by chain-store retailers and other large retailers rose by 1.6 per cent in January and were up 5.4 per cent on a year ago. Dwelling approvals: Dwelling approvals rose by 3.1 per cent in February, after falling by 2.0 per cent in January (originally stated as a 2.4 per cent decrease). Approvals are up 12.8 per cent over the year. Spending on renovations also hit record highs.


  • Services sector: The Performance of Services index rose by 1.1 points to 49.6 in March – its highest level since January 2012. A reading below 50, suggests an ongoing contraction of the services sector.

What does it all mean?

  • The latest retail sales data is clearly encouraging. The low interest environment, coupled with buoyant share markets, and ongoing improvement in consumer confidence is supporting retail activity. Retail trade lifted by 2.5 per cent over the first two months of 2013 marking the strongest start to a calendar year since 2001.
  • Interestingly the rather upbeat results over the past couple of months matches up with the Commonwealth Bank Business Sales Indicator (BSI), which has highlighted the healthy improvement in economy-wide spending.
  • In addition the strength in retail activity was broad-based with sales rising in 19 out of the 20 categories. In fact the only weakness in February was in specialised food retailers like butchers and bakers, however even that weakness followed the biggest gain in 16-years.
  • Interestingly non-food retailing - which has been finding conditions particularly difficult over the past year - is now recording a healthy turnaround, having posted strong back to back gains in the past couple of months to be up 4.1 per cent on a year ago. Over the past year the retail industry had to contend with an array of negative headwinds, however the latest result may just be the first sign of a revival in fortunes for the beleaguered sector.
  • While the latest result is a great news story, it should be tempered with a bit of caution. There is no doubt that deep discounting partly contributed to the pickup in retail activity. However as retail activity improves, it is likely that retailers will be able to reduce discounting and ensure that margin pressures - that has been a theme over the past year - are reversed. A sustained improvement in confidence is the key to ensuring that households feel more comfortable about actively spending. And the outlook has certainly improved in the past couple of months.
  • The building approvals figures tend to be volatile. However there have been clear signs of an improvement in housing activity over the past few months. Low interest rates and pent up demand for housing are the key catalysts for a turnaround in activity levels. And the sector is certainly on a recovery path with approvals now up 12.8 per cent over the year. In fact the number of approvals is also in line with decade averages.

Source : Savanth Sebastian, Economist, CommSec / Twitter: @CommSec

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