'Precisely what you'd expect in an economic downturn': Retail sales tumble despite tax cuts
The Morrison government's income tax cuts and lower interest rates have not been enough to get shoppers into the nation's malls with retail sales falling and damaging expectations of a post-election confidence boost.
The Australian Bureau of Statistics on Tuesday reported retail sales in July, which analysts and the government had expected to see lift on the back of tax cuts that started flowing into bank accounts from mid-July, fell by 0.1 per cent.
The Australian dollar dropped immediately after the release of the results, falling from 67.31 US cents to 67.18 US cents.
Sales were down almost every state and territory, led by South Australia and the ACT where they dropped by 0.5 per cent. NSW and Victoria both fell by 0.1 per cent in seasonally adjusted terms. Western Australia and the Northern Territory were the only areas to buck the national trend.
Asia-Pacific economist for the Indeed job website, Callam Pickering, said annual retail spending in NSW was now at its slowest in eight years.
"Spending growth remains weak for clothing and footwear, household goods and in department stores. Even eating out took a dive in July," he said.
"Households appear to be tightening their belts and limiting discretionary spending. That's precisely what you'd expect in an economic downturn."
The cafe and restaurant sector dropped by 0.6 per cent, there was a 0.2 per cent fall in department stores while clothing and footwear sales ebbed by a full percentage point.
The government has been preparing for a "very difficult" quarter on Wednesday when Treasurer Josh Frydenberg releases the national accounts. The full benefit of more than $36 billion in tax cuts and 50 basis point reduction in interest rates is not expected to be felt until December.
But the Treasurer did receive some positive news on Tuesday. Australia recorded a current account surplus for the first time in 44 years, adding $5.9 billion in the June quarter and 0.6 percentage points to Wednesday's gross domestic product figures.
ABS chief economist Bruce Hockman said six consecutive quarters of goods and services surpluses, driven by the commodities sector, was behind the development.
"The surplus is both a price and volume story. Similar to the March quarter 2019, continued global supply interruptions have maintained high iron ore prices into the June quarter, boosting our export receipts to record levels," he said.
"Export volumes for the key bulk commodities of liquid natural gas, coal and iron ore were up, while volumes fell across several import categories resulting in an increased June quarter trade surplus."
Most importantly for the government, net exports will add to the GDP result. The 0.6 percentage point boost will offset a 0.6 percentage point drag due to a sharp fall in business inventories.
There was also positive news in government finance figures, with total general government spending up by 2.7 per cent in the three months to June. All levels of government spending increased through the month in a development that will also add to the national accounts.
The figures revealed government capital spending fell by 2.3 per cent through the same period.
That would have been much worse but for a 7.1 per cent jump in national defence spending. National non-defence capital spending actually dropped by 4.7 per cent.
The Reserve Bank board will meet on Tuesday afternoon to decide whether to cut official interest rates to a new record low of less than 1 per cent.