Retail spending levels rose 0.5% in the June quarter, beating expectations. Retail sector conditions remain tough, but we are starting to see signs of the long-awaited recovery taking shape.
June quarter retail sales
- Retail sales (volume of goods sold): +0.5% (Prev: +0.8%)
- Westpac f/c: -0.7%, Market: -0.3%
- Core retail sales (volume of goods sold): +0.7% (Prev: +0.4%)
- Nominal retail sales: +0.1% (Prev: +1.4%)
Year to June
- Volume of goods sold: +2.3%
- Nominal sales: +2.5%
Retail spending stronger than expected in the June quarter
The June retail spending report was better than expected. While overall spending growth is still modest, spending appetites are gradually firming, including a lift in some discretionary categories.
Retail spending rose 0.5% over the June quarter. That’s the third quarter in a row that spending levels have been pushing higher. The result was well ahead of our own forecast and the average market forecast for a fall in spending over the June quarter.
At first glance, today’s result seems at odds with comments from the retail and hospitality sectors of continued soft trading conditions. But digging under the surface, we can start to see what’s going on.
In several sectors (especially durable items for the home), spending levels remain well down on the levels we saw in 2021. In addition, while spending levels are turning higher, spending growth remains quite modest – the volume of goods sold rose around 2.5% over the past year, compared to gains of around 4.5% per annum before the pandemic.
But while the retail sector is still confronting some tough trading conditions, we are starting to see signs that the long-awaited recovery is taking shape. Spending levels have risen for the past three quarter. That includes gains in discretionary areas like recreational goods and electronics. However, it is still a mixed picture with spending in sectors like hospitality still flat.
What’s the outlook for the rest of 2025?
Today’s update is an encouraging sign for spending over the remainder of 2025. Spending levels are already pushing higher, and the full impact of the large reductions in interest rates over the past year is yet to be felt.
Over the coming months, increasing numbers of borrowers will be rolling on to lower borrowing rates. The related lift in disposable incomes could be sizeable in some cases, and that’s set to boost spending through the latter part of the year.
There are still some headwinds for the retail sector. Most notably, unemployment is likely to rise around to 5.3% before the end of the year.
Even so, it looks like a recovery in the retail sector is now taking shape.
Implications for GDP growth
We’re forecasting flat GDP growth over the June quarter. Today’s result was ahead of our expectations. However, we’ll take a closer look at how our forecast for GDP growth is shaping up over the next couple of weeks as additional data on June quarter activity is released.
