15 Jun 2017
Retail sales update: Retail sales growth lifts modestly at the start of the Q2.17 period from a contraction in Q1.17
In contrast to market expectations of a moderation in retail sales growth to 0.5% y/y in April from 0.9% y/y in March, sales growth lifted to 1.5% y/y.
In April, growth of 5.1% y/y and 13.6% y/y in general dealers and food retailers respectively made the largest positive contributions, of 2.1% and 1.0%, to headline retail sales growth. Growth in the sales of pharmaceuticals of 2.7% y/y yielded a smaller positive contribution of 0.2%.
All of the remaining retailers reported contractions in sales, with a combined negative contribution of 1.7% (see figure 2).
These sales dynamics have remained in place throughout the year so far (January to April 2017), with only general dealers, food and pharmaceutical retailers registering growth compared to the same period in 2016 (see figure 3).
Retail sales of semi-durable goods (clothing) and durable goods (furniture and hardware) have underperformed. This indicates that consumers are diverting spending away from the more discretionary items, as consumer confidence remains depressed, disposable income growth has been muted and credit extension to households is negative in real terms.
The retail sales update for April indicates an improved start to the Q2.17 period, following the contraction of 1.0% y/y in Q1.17. However, a meaningfully stronger growth path is unlikely to be sustained in view of the confidence and financial pressures on the consumer.
The release of the business confidence survey also signals subdued momentum in the retail sector. Specifically, retailer confidence fell to a reading of 35 in Q2.17 from 45 in Q1.17, on expectations of further pressure on retail sales volume growth.
In terms of other considerations, implied retail inflation moderated to 5.0% y/y in April from 5.7% y/y previously and from a recent peak of 7.1% y/y in February 2016 (see figure 4). This could suggest that alongside abating pressures at earlier stages of the pricing chain, suppressed consumer demand is restricting the extent to which retailers can raise selling prices, where protecting sales volumes is a consideration.