Australian merchants hit by lower consumer spending

Sydney: Australian retail sales unexpectedly declined in December, the first drop in six months, as consumers spent less at grocers and on dining out in an economy where employment growth stalled last year.

Sales declined 0.1 per cent from a month earlier, when they rose a revised 0.1 per cent, the Bureau of Statistics said in Sydney yesterday. The result compares with the median forecast in a Bloomberg News survey of 26 economists for a 0.2 per cent gain.

The report validates Reserve Bank of Australia Governor Glenn Stevens's decision to lower the nation's benchmark interest rate by a quarter percentage point on November 1 and December 6. Australian consumer sentiment rose in January even as the nation recorded its worst annual jobs performance in 19 years.

"Anecdotes of modest pre-Christmas sales, seemingly confirmed by a large fall in part-time [probably seasonal retail] employment in December, indicate weakness in retail goods sales," Andrew McManus, an analyst at Australia & New Zealand Banking Group in Sydney, wrote in a research report before yesterday's release.

Currency

The Australian dollar bought $1.0733 (Dh4.24) in mid-morning trade in Sydney, from $1.0734 before the data.

Spending at cafes and restaurants fell 1.8 per cent, and consumers spent 0.7 per cent less at food retailers, yesterday's report showed. They spent 3.5 per cent more at clothing and footwear stores and 1.1 per cent more at department stores, it showed.

Retail sales, adjusted to remove inflation, increased 0.4 per cent in the three months through December 31 from the previous quarter, the report showed. Economists had forecast a 0.6 per cent gain.

Harvey Norman Holdings, Australia's biggest electronics retailer, said in October that sales fell in the three months through September 30. It cited the strength of the local currency and "intense competition" for the weakness.

Australia's higher borrowing costs relative to other developed-world economies and the mining-investment boom helped drive the Australian dollar to $1.1081 on July 27, the highest since exchange controls were scrapped in 1983.

It slipped in ensuing months as Europe's debt crisis worsened. The currency has strengthened 5.5 per cent this year and touched a six-month high of $1.0794 on February 3.

Change in sentiment

Richard Goyder, chief executive officer of Perth-based Wesfarmers, Australia's second-largest retailer, told reporters last week that he doesn't expect any "significant change" in consumer sentiment.

"There is a degree of uncertainty around at the moment for a whole lot of reasons around what's going on globally, what people read about that, what people will see in terms of their" pension returns and house prices, he said February 2.

"Because of that lack of conference generally I'm not sure that consumer sentiment is going to change a lot."

Stevens lowered borrowing costs to 4.5 per cent from 4.75 per cent on November 1, the first reduction since April 2009, and cut again to 4.25 per cent on December 6. Futures traders priced in a 54 per cent chance Stevens will cut again tomorrow as Australia's job market weakens.