Retail sales fall as services sector inches forward

Retail sales fell by 0.5% in March, quashing economists’ predictions of a 0.5% rise, suggesting the retail sector is still struggling to stage a recovery.

According to the Australian Bureau of Statistics, sales in March fell to a seasonally-adjusted $20.46 billion, following an upwardly-revised increase of 0.8% in February.

Department store sales posted the biggest fall, down 3% during the month, while food retailing posted a 0.4% drop and household goods retailing fell 0.3%. Sales in clothing and footwear had a minor victory, inching up 0.1%.

Commonwealth Bank chief economist Michael Blythe says the average consumer is far more interested in savings and paying off debt than spending.

“It’s not so much consumer caution, it’s retail caution that we should be thinking about – one third of consumer spending is in the retail sector, so the retail sector is currently in pain,” Blythe says.

“We also found that women dominate decisions in the retail sector of spending and men tend to dominate the spending decision in the non-retail areas of the economy.”

“What stands out about this is that our female client base is much less optimistic about the outlook than our male client base, so the less optimistic the group that controls retail spending is, the weaker that sector will be.”

As the retail sector takes a step backward, the services sector appears to be in positive territory, as detailed by the latest Australian Performance of Services Index.

Released by CBA and the Australian Industry Group, the index in April lifted five points to 51.5, putting it above 50 points, which separates expansion from contraction.

However, the sector continues to face challenging conditions following five months of decline, with sales and new orders remaining in negative territory in April.

AIG chief executive Heather Ridout says businesses in the services sector need to keep a close watch on activity over the next few months for signs of either a more sustained recovery or a return to weak conditions.

Meanwhile, CBA senior economist John Peters said in a statement there are still “negative headwinds” hampering more upbeat activity in the sector.

“These negative factors include an Australian dollar still posting fresh post float highs… and rising interest rates over the past year and more likely to materialise over the next year,” Peters said.

“Another key factor behind feeble consumer spending activity in early 2011, despite very strong national labour market conditions, is ongoing consumer jitters in wake of the global financial crisis and recent natural disasters at home and abroad.”

“Consumer concern is being reflected by lifting savings as a share of disposable income to around 10%. As well, consumers are reducing debt levels with newfound alacrity.”