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Soft retail sales growth and falling job vacancies boost case for another rate pause in October

Dr Shane Oliver, Head of Investment Strategy & Chief Economist at AMP, discusses the RBA.

Key points:
Annual retail sales growth slowest since 2021 lockdowns, retail volumes continue to decline, challenging consumption outlook.Job vacancies fell 9% over the last quarter, pointing to further slowing in the labour marketBoth data points will likely help keep the RBA on hold next week.Australian nominal retail sales rose by 0.2% in July, as expected by us and slightly lower than market consensus of +0.3%. In annual terms, growth in retail sales slipped further to 1.5%, which is the slowest since the August 2021 lockdowns.

Remember that retail figures are in nominal terms, and that annual inflation remains high. This means retail sales volumes are likely continuing to fall despite rapid population growth. On our estimates, real retail sales are running down 2% on a year ago.

Source: ABS, AMP

In August, food and household spending growth were both negative, dropping by 0.3% and 0.4% each, likely related to falling fruit & vegetable prices. Meanwhile, discretionary spending increased, with the strongest growth in clothing/soft goods (+1.3% m/m) and eating out (+0.7% m/m). The ABS attributed these pickups to warmer than usual weather, Afterpay Day promotions (which might not be reflected in seasonal adjustments), as well as boosted demand for fan gear & takeaway food from the 2023 FIFA Women’s World Cup.

Retail sales are actually pretty soft though given the boost from warmer than normal weather, the boost from the Women’s World Cup, the Afterpay Day promotions, the fastest population growth since the 1950s and still high inflation. The 0.2% rise in August followed a 0.5% rise in July but a 0.8% fall in June and since October/November last year retail sales have basically been flat. September quarter real retail sales are on track for their fourth quarterly fall in a row highlighting the pressure on households from interest rate hikes and cost of living pressures.

With population growth running around 2.5%, retail sales per person are actually down 1%yoy and real retail sales per person are down around 4.5%yoy.

Source: ABS, AMP

Job vacancies are also falling sharply, as interest rate hikes are putting downward pressure on overall economic growth. Openings registered the fifth consecutive quarterly decrease, falling by 8.9% over the three months to August leaving them 18% below their May 2022 high. This has taken the ratio of job vacancies per unemployed person from a high of 1 in July last year to now 0.7. The level of job vacancies are still high indicating a still tight labour market, but they are now falling rapidly indicating that the labour market is rapidly cooling.

Leading labour market indicators, including job vacancies and job ads and the ratio of job vacancies to unemployment are now all deteriorating, pointing to a further cooling in the jobs market ahead. This in turn should start to take pressure of wages growth next year, albeit the risks are on the upside in the near term.

Source: ABS, AMP

Today’s data confirm ongoing weakness in consumer spending and a still tight but cooling labour market, and we see it as boosting the case for the RBA to leave rates on hold next week which we think they will do.

Signs of rising wages growth in enterprise bargaining agreements and still high inflation mean that the risk of another rate hike is high though (at around 40% in our view) but if this were to occur it probably won’t come until November or December after the next round of ABS inflation and wages data and revisions to RBA forecasts. But given falling real retail sales and the softening jobs market it’s a tough one for the RBA and we continue to see the RBA cutting rates next year starting around June as the economy weakens with a very high risk of recession.

Prepared with assistance from My Bui.


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