The trade data has the potential to affect the Aussie dollar so it may be important for exporters. Retail trade data is important for consumer-focussed companies.

What does it all mean?

• At face value the story in August seems to be that Aussie consumers stayed inside their warm homes and shopped online rather than venturing outside. It may also be the case that more Aussies escaped the winter cold and headed north to Europe and the US for holidays. Certainly the decline in retail spending was sizeable.
• There are other potential explanations. It may be that retailers trimmed prices to encourage higher sales. And weighty electricity and gas bills may also have prompted consumers to cut discretionary or non-essential spending. Consumers are also still adjusting their mindset to lower wage growth. Wages are still outpacing prices but the slower nominal wage growth makes consumers feel poorer.
• Of course spending doesn’t move in straight lines. Spending soared 1 per cent in April and 0.5 per cent in May before tailing off. It may be that spending is shown to rebound in September. Certainly the job market is stronger. And more Aussies will be moving into new homes and fitting them out with floorcoverings and furniture. It is also important to remember that retail trade accounts for less than a third of consumer spending, so it’s not a great guide on the state of the consumer.
• While retail spending disappointed, the trade data was positive. Australia has recorded its largest ever surplus for a 12-month period, a surplus of $16.8 billion in the year to August. The services accounts are in the black. Exports to China over the past year were a record, just below $100 billion. And exports to India are running at a near 70 per cent annual rate.
• The strength in exports will generate fresh income flows into Australia and add to wealth levels.

What do the figures show?

Retail trade

• Retail trade fell 0.6 per cent in August after a downwardly-revised fall of 0.2 per cent in July. Sales had averaged gains of 0.4 per cent a month in the previous four months. Annual sales growth fell from 3.5 per cent to 3.1 per cent.
• Spending grew strongly in April by 1 per cent but then has consistently slowed. Still, sales have grown 0.2 per cent a month over the past five months.
• Non-food retailing fell by 0.7 per cent in August to be up 2 per cent over the year.
• Spending rose the most at “Other retailing” (Internet retail, antiques, flowers), up 1.7 per cent; followed by “Department stores”, up by 0.7 per cent; and “Clothing retailing” up 0.1 per cent.
• Spending fell the most at “Newspaper and book retailing”, down 2.3 per cent; followed by “Cafes, restaurants and catering services”, down 1.8 per cent and “Electrical and electronic goods retailing”, down 1.6 per cent.
• Sales by chain-store retailers and other large retailers fell by 0.3 per cent in August after averaging gains of 0.5 per cent a month over the previous four months. Sales are up 3.8 per cent over the year.
• Sales rose in all of the eight states and territories: NSW (-0.2 per cent), Victoria (-0.8 per cent), Queensland (-0.8 per cent), South Australia (-0.6 per cent), Western Australia (-0.6 per cent), Tasmania (-0.7 per cent), Northern Territory (-0.7 per cent), ACT (-0.8 per cent).

International trade:

• The trade surplus rose from $808 million in July (previous reported as $460 million) to $989 million in August. The rolling 12-month surplus rose from $14.0 billion to a record $16.8 billion.
• The net services accounts rose a $4 million deficit to an $18 million surplus.
• Exports of goods and services rose by 0.5 per cent in August (goods up 0.2 per cent). Imports of goods and services were flat (goods down 0.4 per cent).
• Exports are up 17.1 per cent on a year ago, while imports are up 6.8 per cent.
• Rural exports fell by 0.7 per cent in the month while non-rural goods rose by 2.1 per cent and gold exports fell by 19.4 per cent.
• Within imports, consumer imports fell by 3.7 per cent in August with capital goods imports down by 2.7 per cent while intermediate goods imports rose by 4.3 per cent.
• Consumption goods imports were down 0.6 per cent on a year ago while capital goods imports were up 15.2 per cent and intermediate goods imports were up by 12.6 per cent.
• Australia's annual exports to China lifted from $96.5 billion to a record high of US$98.6 billion in the year to August. Exports are up 32.4 per cent on a year ago. Exports to China accounted for 33 per cent of Australia's total exports.
• Australia's annual imports from China rose from $61.6 billion to a 17-month high of $61.7 billion in the year to August. Imports were up by 1.3 per cent on a year ago. Imports from China accounted for 22.2 per cent of Australia's total imports.
• Australia's rolling annual trade surplus with China hit a 35-month high of $37 billion in August although this is still down from the record high of $42.8 billion set in April 2014.
• Australia’s exports to India hit fresh 6-year highs, totalling $15.8 billion in the year to August, up 68.1 per cent on the year.

What is the importance of the economic data?

• The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.
• The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.

What are the implications for interest rates and investors?

• Certainly no rate hikes for now. Economists that had tipped a rate hike in early 2018 may now be going back to their calculators. CommSec expects interest rates to be unchanged for the foreseeable future.
• The record trade surplus provides fundamental support for the Aussie dollar.
• Retailers now have even more justification to prepare for the entry of Amazon. If consumers have become more price-conscious and are increasingly looking for value, the risk is that they may find that in the offering by Amazon.

Craig James, Chief Economist @CommSec