Index hints at crimp in retail transport demand

AGFC/Chep report forecasts slight slide in growth, despite delayed impact of interest rate cuts

April 29, 2013

Transport and logistics firms exposed to the retail sector can expect a slight squeeze in demand for their services, the latest retail index from the Australian Food & Grocery Council (AFGC) and pallet firm Chep indicates.

The retail trade growth rate decreased marginally in the first calendar quarter and is expected to ease further as the year continues.

The AFGC CHEP Retail Index shows 3 percent growth in the March quarter year on year but forecasts that
growth will ease to 2.6 percent in the June quarter.

For March, the Index indicates that the Australian Bureau of Statistics (ABS) will report year-on-year growth of 2.6 per cent, with turnover of $21.7 billion.

The Index forecasts May retail trade growth
at 2.8 percent year on year, with turnover increasing to $21.9 billion.

"Retail conditions have been soft through the beginning of 2013, and the Index confirms that consumer confidence remains fragile, with low interest rates yet to bring a sustained lift in the retail sector," AFCG CEO Gary Dawson says.

Recent ABS statistics have shown a more solid rate of year-on-year growth in food and grocery retail than overall retail sales growth.

Food retail growth was 4.6 per cent in February.

Spending on cafés, restaurants, and takeaway food "reflects a similarly solid growth rate".

By contrast, department stores experienced year-on-year sales growth below 1 percent in February as growth in online sales and ongoing price deflation weighed on non-food retailing.

The trend is disappointing, as the year had begun with ome signs that interest rates are finally beginning to stir economic activity, although the positive movement is yet to flow through to sales growth, the Index’s authors comment.

The sharemarket has lifted, housing prices are stabilising, and consumer confidence, as measured by the Westpac-Melbourne Institute Index, has also edged back into the optimistic range.

Total retail sales growth has lifted slightly from the rates of growth seen in late 2012, and increased to 3.2 percent over the year to February 2013.

That said, they still have some confidence that the full effects of cheap money recently are yet to be felt, though the effects may be marginal when it is.

"Looking ahead, early 2013 may see a soft demand environment continue for retail, particularly as jobs growth remains relatively weak," they say.

"However, low interest rates have yet to fully work through, while rising asset prices and consumer confidence may provide some further support.

"Yet, that may not be enough to result in much pick-up in the trend rate of sales growth in the near term – a result that would be consistent with the latest AFGC CHEP Retail Index data."

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