Retail sales growth slows, trade surplus narrows in mixed July data

Retail sales growth slowed in June and the nation’s trade surplus almost halved in July, in lacklustre economic data released on Thursday.

Sales rose 0.3 per cent in May, when they were up by 0.6 per cent, the Australian Bureau of Statistics said.

The trade surplus narrowed to $460 million in July from $888 million in June, after exports fell 2 per cent, outpacing a 1 per cent decline in imports.

Analysts had questioned the recent momentum in retail and vehicle sales, given mortgage debt is accelerating faster than incomes.

“This (spending momentum) is unlikely to continue as the wealth effects flowing from property price gains in Sydney and Melbourne slow,” said Shane Oliver, chief economist at AMP Capital.

“Rapid power cost increases and high debt are also not helping. All of which is driving low consumer confidence.”

Gas and electricity prices rose by around 20 per cent on July 1, weighing on household budgets at a time when private debt has skyrocketed to 190 per cent of disposable income.

As a result, consumption growth so far has largely been driven by a tick up in population and a slowdown in the savings rate which is sitting at an 8-1/2 year low of 4.6 per cent.

Australians are also collectively taking a pay cut, according to analysis by Morgan Stanley, which shows average non-farm compensation shrank by 0.3 per cent in the June quarter.

And, average hourly earnings contracted for the first time since 1993.

Many economists believe gross domestic product (GDP) growth will probably fall short of the Reserve Bank of Australia’s upbeat forecast of around 3 per cent a year over the next two years.

Narrowing surplus

Neither was there much good news on the trade front with Australia’s surplus on goods and services narrowing unexpectedly to $460 million in July, almost half what analysts had forecast.

Export earnings fell 2.2 per cent to $31.07 billion, led by falls in gold, iron ore and coal prices. That was a surprise to many as commodity prices had started climbing in July after a couple of soft months.

Analysts noted miners often reported the prices they received with a considerable delay, so it was possible exports could be revised up once the ABS obtained the updated numbers.

Commodities have been on a tear of late, with a strong outlook. The RBA’s commodity index, which mirrors Australia’s export mix, jumped 7.8 percent in August when using spot prices and was up over 25 percent for the year.

Copper touched a three-year peak this week and gold a one-year top. The main futures contract for iron ore in China has surged 40 percent since late June, a huge windfall to Australian miners’ export earnings and profits.

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