“Strengthening employment is providing the basis for spending to lift, including a rebound in full-time jobs growth and continued wealth gains from housing,” said Deloitte Access Economics partner David Rumbens.
“But consumers aren’t happy. Despite improvements in unemployment expectations and an increase in business confidence, consumer sentiment is at a low point with concerns over financial risks. And in the face of oncoming competition from the likes of Amazon, widespread aggressive discounting to lure in the consumer dollar, and rising energy prices, it’s likely retailers aren’t so happy either.
“Nominal retail spending growth for the year to June 2017 was 3.6% and we expect it to remain steady at that rate over the year to June 2018. However, more of the growth next year may come from volume growth, with prices increasingly under pressure. Retail volume growth for the year to June 2017 was 2.5%, rising to 3.4% for the year to June 2018,” said Mr Rumbens.
Jobs growth swings back to full-time. Between December 2016 and July 2017, full-time jobs rose by 1.9%, while part-time jobs grew by just 1.3%. This is a substantial turnaround when compared with 2016, during which the absolute number of full-time jobs declined.
However, at around a third of total employment, the proportion of part-time jobs is still high and this is associated with significant underemployment. The underemployment rate is now 9.3%, which means almost one-tenth of workers would prefer more hours of work than they currently have.
Spending surprised on the upside in the June quarter. Real retail turnover over the June quarter was 1.5%, which is the highest real growth result since the March quarter in 2013, and follows a subdued start to 2017 for retail spending growth.
“This signals an improved spending outlook after three months of negative turnover growth in the last year,” said Mr Rumbens.
Volumes improve while prices struggle. Retail price growth is minimal, at 1.0% over the year to June 2017. Intense competition is keeping all retailers focused on delivering customer value at the least cost possible. The entry of Amazon and other international online retailers into the market over the coming years will only put further downward pressure on prices.
Catered food wins out against supermarkets. The trade-off between saving time and saving money has leaned into catered food’s favour over the past year, with a lower rate of price growth for this sector than for supermarkets. Catered food spending grew by 3.3% over the year to June 2017 in real terms, compared to just 1.2% real spending growth for supermarkets.
Household goods are back on top. Household goods are back on top, outpacing all other non-food retail categories in the year to June 2017, with 5.8% real turnover growth. On the other side of the spectrum, real turnover growth for department stores remains weak over the past year at 1.3%.
Energy prices put pressure on retail margins. Mr Rumbens said: “The average price of electricity in Australia grew by 116.4% over the ten years to June 2017, and 7.8% over the last year alone. This adds further pressure to retailer margins, as intense competition keeps prices down. On the bright side for retail costs, retail wage growth is growing even slower than the record low average wage growth across the economy.”