Retail sales unexpectedly fell 0.6% in May according to the Australian Bureau of Statistics as consumers adopt a wait and see approach to spending while they await the next interest rate rise.
The ABS data revealed that retail sales fell from $20.74 billion in April to $20.61 billion in May, quashing economists’ predictions of a 0.3% increase.
Clothing and footwear took the biggest hit, falling 1.8% while food retailing fell 0.4% and household goods eased by 0.2%.
Turnover for cafés, restaurants and takeaway outlets edged up by 0.4%, suggesting that consumers are continuing to swap retail spending for dining out.
Victoria and NSW recorded the biggest declines in retail turnover, both falling more than 1%, while WA was the only state to record a substantial rise – 0.8%. Sales fell in the ACT and were unchanged in Queensland.
Economists say the slowing job market coupled with the threat of higher interest rates has taken a toll on confidence and discretionary spending.
“We expect this is just a soft patch and retail trade will strengthen again over the year, keeping pressure on the Reserve Bank to hike interest rates,” Moody’s Analytics economist Katrina Ell says.
The latest report from MasterCard – the MasterCard Worldwide Index of Consumer Confidence – revealed that optimism among Australian consumers fell from 74.1 points in March last year to 63.1 points in March 2011.
Conducted annually, the latest index is based on a survey of 647 Australian consumers, with the index score calculated with zero as the most pessimistic and 100 as the most optimistic.
According to MasterCard Australia country manager Andrew Cartwright households are keeping their wallets closed and are adopting a wait and see approach, particularly in relation to interest rate announcements, before making any large scale purchases.
The index shows that Australians are particularly pessimistic across two of the key metrics of consumer confidence – with notable drops from 66.7 points to 61.8 points for confidence in the economy and 70.7 to 65.9 points for confidence in employment in the past six months.
Generational and gender differences also impact on consumer optimism scores according to the index.
Respondents aged 30 and under have an average index score of 73.1 compared to an index score of 51.8 for older generations.
“Australians moving into their retirement years are understandably concerned with their financial future and the impact interest rate shifts will have on their nest eggs, which means they are more cautious with their money,” Cartwright explained.
The difference between men and women is also notable – with an average index score of 67.3 for men compared with 58.3 for women.
The research demonstrates that opinion over the fate of the economy is divided. One in five consumers believed Australia’s economic performance would slow down in the first six months of 2011, 50% thought it would remain the same and 33% thought it would improve.
“Australian consumers are clearly concerned about how changes in economic trends and the subsequent impact the growth and contraction of the market will have on their pockets… Australians have simply tailored their spending and saving accordingly,” Cartwright says.