Australian Shopping Activity Flatlines as Tax, Rate Cuts Fail to Fire

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Australia's struggling households are under the spotlight again as flat retail sales and imports underscored a consumer unwilling to part with their cash despite recent tax rebates and interest-rate cuts.

Retail sales were unchanged from a month earlier in October with department store and clothing sales slumping, the statistics bureau said in Sydney Thursday. Imports were also little changed while exports fell 5%, narrowing the trade surplus to A$4.5 billion ($3.1 billion).

The results follow GDP data that showed consumption barely budged in the three months through September, and as the central bank highlighted uncertainty over household spending when it kept rates unchanged Tuesday at a record low. Australians are hunkering down, opting to save tax cuts and use rate reductions to pay down mortgages faster to bolster their resilience.

What Bloomberg's Economists Say

“There's little sign yet that households are prepared to part with income boosts from rate cuts and tax offsets. Unexpectedly weak retail sales suggest the savings dynamic evident in the national accounts -- where households saved more than A$4 out of every A$5 of extra income in 3Q -- is yet to shift.

One bright glimmer in the details of the trade data is imports of motor vehicles. After a steady decline, as households responded to wealth effects by curbing purchases of new cars, motor vehicle imports appear to have bottomed.”

James McIntyre, economist

The Australian dollar declined after the readings, and was trading at 68.42 U.S. cents at 12:35 p.m. in Sydney. Traders are pricing a two-in-three chance the Reserve Bank will cut rates again when it meets in February.

Real wages Down Under have barely moved for half a decade, leading to altered household behavior that is beginning to entrench low inflation expectations. Meantime, eye-watering property prices in Sydney and Melbourne have forced buyers to load up on debt in order to secure a home.

The cut in the trade surplus reflected lower prices of iron ore and coal -- Australia's key exports -- and a slump in non-monetary gold. That reduces the windfall cash in the economy and, in turn, the amount Australians can spend on services that account for the bulk of GDP. This connection is set out in the chart below.

Australia's economy slowed last quarter, a report showed Wednesday, with trade and government spending proving the remaining pillars supporting the expansion; however, weaker exports put even that narrow base at risk.

There is a flicker of light though: GDP showed a jump in savings, suggesting Australians are holding onto their cash and do have the capacity to spend if they choose. November's retail data due January 2020 will incorporate sales surrounding Black Friday and should signal whether shoppers are prepared to open their wallets.

--With assistance from Garfield Reynolds.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Malcolm Scott, Jiyeun Lee

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