Retail sales drop to levels not seen since the 1991 recession
The "retail recession" is getting deeper and is now worse than anything faced by the sector during the global financial crisis, a key survey of the nation's businesses has revealed as the Reserve Bank grows confident its interest rate cuts are flowing through to borrowers.
Ahead of key wage and job figures this week, the closely-watched NAB business survey showed trading conditions and confidence remaining weak with a concerning drop in employment plans by the nation's firms.
Retail recession is getting deeper, NAB’s business survey suggests, but the RBA is confident its rate cuts are flowing through to borrowers.Credit:Dominic Lorrimer
The toughest sector remains retail where profits, trading conditions and employment intentions weakened through July despite the impact of the government's personal income tax cuts and the reduction in official interest rates.
Car retailing, food and household goods are all very weak with profit margins for many retailers being squeezed while sales slip. The volume of total retail sales is now at a level not seen since the 1990-91 recession.
NAB chief economist Alan Oster said the retail sector was "facing recessionary levels" of activity with no sign it would improve in the near term.
He said more broadly there continued to be warning signs about the general economy.
"Looking at the components of the survey that provide an indication of conditions going forward, we see little improvement. With both forward orders weak, and capacity utilisation a bit below average – both capital expenditure and employment growth are at risk," he said.
"With a significant loss of momentum in activity, and inflation indicators remaining weak, the survey points to the need to the need for further stimulus in the economy.
"Indeed, we expect a further easing in interest rates from the RBA and think that some greater fiscal support will be needed from the government to kickstart growth."
The Reserve cut interest rates to 1 per cent at its June and July meetings, arguing that Australia could do better than to have an unemployment rate above comparable nations. It believes lower unemployment will help lift wages which in turn should lift inflationary pressures.
RBA assistant governor Christopher Kent said of the June quarter percentage point cut in official rates, banks had sliced their standard variable mortgage rates by an average of 0.23 percentage points.
He said there were already signs almost all of the July rate cut was also flowing through to the market with new borrowers in a particularly good position to get a good deal.
"New borrowers, and those refinancing existing loans, continue to be offered interest rates that are on average well below those applying to existing loans," he said.
"So customers who are actively looking around at what's on offer, are able to take advantage of the strong competition among lenders."
Dr Kent said there were some preliminary signs that there had been a lift in approvals for new home loans while auction clearance and house price growth indicators also pointed to an improvement in the property market in NSW and Victoria.
"If housing conditions continue to improve in the coming months, we would expect to see a further rise in loan approvals," he said.
JPMorgan's Ben Jarman said the NAB survey's findings around business employment plans point to the national jobless rate lifting to 5.3 per cent.
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