Remarks from Reserve Bank governor Glenn Stevens promising a recovery in retail markets and higher consumer confidence have been tainted by a new outlook from the Australian Food and Grocery Council, which predicts sales will slow 1.5% in the September quarter.
The downgrade in expectations comes just days after a major retailer, Premier Investments, announced 50 store closures, with retail experts expecting another six months of pain.
The AFGC CHEP retail index predicts that activity will flatten in the September quarter, with just 1.5% year-on-year growth, following growth of just 3.2% in the June quarter.
Activity is slowing during August to just 1.9% year-on-year, the index found. The survey studies physical and product movements through supply chains, providing “an early indication of economic activity”.
AFGC figures are released before data from the Australian Bureau of Statistics, and are also based on pallet movements.
AFGC chief executive Kate Carnell, who was contacted but was unavailable prior to publication, said in a statement that household confidence is continuing to fall.
“A fall in retail spending translates to less movements through Australia’s long supply chain, impacting upon the food and grocery manufacturing sector, which is already under pressure from a “perfect storm?, such as rising input costs from wages, water and energy power prices, higher transport costs, including fuel and near record high global commodity prices.”
Such lower spending will have an impact on “Australia’s long supply chain”.
But the forecast contrasts against comments from RBA governor Glenn Stevens, who said in a speech yesterday that consumer confidence will return and that he is upbeat on a recovery for the retail sector.
Stevens said that investment has overtaken household consumption, and that confusion over interest rates has added to the uncertainty caused by discussion over the carbon tax and various debt problems in Europe and the United States.
“Were some of the current raft of uncertainties to lessen, the mood could lift noticeably,” he said, adding that spending could resume because the shift to saving more money had happened extremely quickly.
Stevens’ comments come as more debate continues over whether the shift to frugality is a permanent or temporary shift. One Merrill Lynch report recently found that because the savings rate had begun increasing prior to the financial crisis, retailers should no longer expect the previous types of growth rates they had recorded in the 2000s.
However, Stevens says many shoppers will take some time to get used to the new trading environment.
“Viewed in long-run perspective, it is not unreasonable for a nation to save a good deal of a sudden rise in national income conferred via a jump in the terms of trade, until it becomes clearer how persistent that new level of income is.”
He also said that because retailers were so used to seeing dramatic spending growth during the first half of the decade, coming into a period of subdued growth has shocked many businesses.
“Coming after a period in which real consumption had risen by 2.8% a year for a decade, and had outpaced income growth for two decades, no net growth consumption is quite a big change.”
Stevens also said the increased savings rate will protect Australian consumers from another credit crisis, which some economists say might occur if the United States defaults on its debt obligations.
“Though I can’t pretend there’s a lot of blue sky optimism for the very near future, we are actually building resilience into balance sheets of households pretty starkly, and that’s a thing that will stand us in good stead in troubled times sometime in the future.”
Markets responded to Stevens’ comments by downgrading expectations of an interest rate cut.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
