A leading Australian business survey has concluded that the continent’s retail sector is “clearly in recession”.
New data from NAB shows Australia’s “Index of Business Conditions” falling by 2 points in May, putting it well below its long run average. The data comes a week after Australia’s Reserve Bank was forced to cut interest rates to its lowest level in history and additional data from the Australian Bureau of Statistics showed the economy had slowed to its weakest level since the 2009 financial crisis.
Alan Oster, NAB Group Chief Economist said on the NAB Economics podcast:
“Business confidence saw a sharp increase in the month following the Federal election and a confirmation from the RBA that rates would be cut in June. We think this will be a short-term spike given other forward-looking indicators saw further deterioration in the month. Forward orders declined further and in addition to being well below average are negative. Capacity utilisation has also pulled back in 2019 to date and is now a touch below average”.
He continued: “While confidence, at least at face value was a positive outcome, business conditions deteriorated further. Trading conditions and profits are particularly weak. The employment index which we are watching closely, partially reversed some of its decline last month, but is only around average.”
Business conditions declined across all states except Queensland. The NAB survey’s measure of trading, or sale, also fell, down by 5 points. Forward orders also slipped a point.
Oster continued: “Conditions have weakened across all states over the past year though NSW, VIC and SA are most favorable in trend terms. Of some concern is the recent deterioration in WA which is now negative, despite the mining sector still showing strength.”
He continued, stating on the podcast: “While the retail industry has lagged the other sectors for some time, the recent deterioration has seen conditions in the industry fall to levels not seen since the GFC. This suggests that the consumer remains highly cautious with anything but spending on essentials because of ongoing slow income growth, high debt levels and possibly some concerns over falling house prices. Forward-looking indicators suggest that the bounce in confidence is likely to be short-lived and that conditions are unlikely to turn around any time soon. We will also continue to closely watch the employment index for a lead on any turning points in the labour market.”
Queensland University of Technology associate professor and retail expert Gary Mortimer told News.Com.Au: “Certain sectors are clearly struggling — such as apparel, footwear and accessories — however this category has been impacted by aggressive discounting and the entry of international fast fashion retailers.”
Oster said that Australians are now reluctant to spend and that the recently elected government would need to deliver on tax cuts to stimulate the economy.
He concluded by saying he did not want to “overemphasise” the doom and gloom in the sector, but said “readings of -27, which we’ve got in retail, [are] so grim”.