We have updated our retail sales outlook, with modestly higher forecasts for 2024. We forecast 2.7% growth (up from 2.5% previously). We have lifted our non-food forecasts, but lowered food & liquor forecasts. The prevailing sales trends are very soft but should improve in the back-half of calendar 2024 as income tax cuts flow through. We only see a modest pick up because lower retail price inflation will constrain overall sales growth in FY25e.

Australian retail sales rose by 1.6% year on year in February 2024, adjusted for the leap-year effect. Sales trends are very weak, given population and price are still positive contributors to retail. As a silver lining, retail is now almost back to pre COVID-19 underlying sales trends. Perhaps the mean-reversion is done? The weakest categories in February were furniture, electronics and footwear. Pharmacy, cosmetics and apparel did well. We expect retail sales growth to continue to hover around 0%-2% over the next few months.

The Australian National Accounts for the June 2023 quarter revealed that wages growth remains very strong and, despite a range of headwinds, households still want to spend their money. They continue to tap into stored-up savings to sustain spending habits. Wages grew 9.2%, disposable income only rose 2.1% and consumer spending was up 7.8%. The Australian economy is also benefiting from population growth of 2.4%, which should remain above trend for another 12 months. The headwinds for household will continue and retail spending is likely to remain weak give both a squeeze on living costs and a desire to spend elsewhere outside of retail. This weakness is likely to be most acute in calendar 2023, but we may not see a meaningful improvement in retail sales growth till 2025.