Retail and services sales slowed in June, but sentiment remains positive
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
June's retail and services sales figures were somewhat disappointing, following on from the already weaker results in May. Both sectors thus fit into the broader context of surprisingly low GDP growth in the second quarter, which was only 0.2%. While retail sales maintained a solid quarter-on-quarter growth rate in the second quarter (in the range of 1-2% by segment), services sales slowed significantly and their expansion almost came to a halt (see table below).
Nevertheless, current economic sentiment suggests that this could be only a temporary wobble. Both the June and July confidence indicators pointed to a revival of optimism, particularly in services, where, moreover, firms do not see demand as an obstacle to further growth. At the same time, households are declaring a stronger willingness to make larger purchases. Relatively good June industrial payroll statistics also contribute to the positive picture. While these are partly offset by a slight rise in unemployment, labour market expectations have shifted into more neutral territory. Therefore, household consumption and the service sector continue to appear likely to be among the mainstays of the economy in the second half of the year.
In June alone, retail sales excluding autos rose by 0.3% month-on-month, only partially correcting May's decline of half a percent. Therefore, I assess June retail sales growth as rather weaker, also due to the more moderate growth in food and fuel sales. So-called core retail sales (excluding autos, food and fuel) continued to grow at a relatively steady 0.3%, following the previous half-percentage point increase in May.
Services posted a 0.2% month-on-month decline in sales in June, adding to the overall picture of subdued demand. This weaker momentum followed on from the virtually stagnant development of the previous month.
Note: Unless otherwise stated, we work with seasonally adjusted figures in the text. Annualized developments show possible year-on-year growth if the current month-on-month dynamics are maintained.
