The market expects tomorrow's AU retail sales to slow further. The consensus sits at +0.4% MoM, versus the April print of +0.9%. The range of forecasts is fairly wide at -1.0% to +1.0%.
- Some slowdown in spending is not surprising as conditions normalize from late last year, with large chunks of the economy now out of lockdown for quite some time, while tighter financial conditions (higher inflation, rate hikes etc) start to bite.
- This latter point is best illustrated by the sharp drop in the Westpac consumer sentiment index, see the chart below, where we overlay YoY changes in this index against retail sales.
- There is a reasonable divergence between the two series at present. At face value such depressed sentiment points to downside risks to spending outcomes.
- The longer term correlation between the two series is not that high though, +22.5%, while for the past 3 years it is slightly higher at +35%.
- RBA Governor Lowe has also highlighted on numerous occasions, in recent months, the large buffer to tighter financial conditions from high household savings (in excess of $A200bn).
- The RBA will no doubt be hoping, while sentiment has fallen sharply, it isn't yet weighing materially on actual spending outcomes.
Fig 1: Australian Retail Sales & Westpac Consumer Sentiment
Source: Westpac, MNI - Market News/Bloomberg