ABS hardware retail stats to May 2022

The Australian Bureau of Statistics (ABS) has released its stats for hardware retail sales through to May 2022.

ABS retail stats for May 2022

While the results remain predominately positive for hardware retail, it is worth noting that the market is beginning to reflect a series of stresses. There has been an uptick in builders finding themselves unable to complete contracts at the agreed price, leading some companies to default. That is largely a consequence of ongoing price rises for materials, combined with shortages of construction labour.

Most forecasts for FY2022/23 have been very sanguine about the future of construction spending, pointing to high levels of work backlogged, as the capacity of the construction industry fails to reach demand. However, there is some possibility that, as interest rates rise, shortages in construction materials continue and inflation continues higher, that some planned construction work will be abandoned.

Similarly, it is very difficult to work out from the ABS numbers how much of retail growth is due to increase demand, and how much is due to inflation. The number that will reflect that will be net profit for retailers. The increase in revenues would seem to be high enough and steady enough to reflect ongoing mild growth in the market.

That said, because inflation is being driven by a range of factors, it is to be expected that the Reserve Bank of Australia (RBA) is likely to pursue ongoing aggressive increases in interest rates. The factors contributing to higher rates include expenditure displaced from activities such as travel, ongoing supply chain issues, catastrophic weather events increasing food prices, the war in Ukraine, and continuing high levels of demand in key categories such as housing and automobiles.

That means the possibility of four more subsequent increases in interest rates by 50 basis points, bringing the target rate to over 3.0% by the end of calendar 2022. While that is regarded as an outlier possibility, HNN does think Australian banks are underestimating the likely increase, as this will almost certainly reach at least 2.3% by the end of the year.

Added to this concern is the fact that Australian state and federal governments have chosen to under-respond to the ongoing threat from COVID-19. Currently Australia has one of the highest rates of infection per 1000 of population in the world. There are signs of stress in hospital resources. It's a situation that could easily, over the next three months, see a return to mandated restrictions.

As usual with our statistics, HNN deals with periods of 12 months ending with the most recent month of results, designated with the prefix "p". Thus "p2021" refers to the period from June 2020 to May 2021.

Australia

The May 2022 stats for hardware retail turnover have not altered the statistical picture from April 2022 by much, except to further confirm the trends that began in January 2022. The Chart 1 for overall turnover shows the familiar results, with the two most recent periods showing a sharp increase over previous periods.

Chart 2 also looks familiar, though there are some changes evident as well.

Where previously there was an even spread of growth for p2022, there is a slight clustering, with Western Australia (WA) and South Australia (SA) both over 7.5% growth, New South Wales (NSW) and Queensland (QLD) at between 4.5% and 5.5%, and both Victoria (VIC) and Australian Capital Territory (ACT) at under 0.4% growth. VIC is the only region to show negative growth, at -1.0%.

Looking at the comparative revenues across the years at the top of Chart 3, p2022 continues to trace the seasonal patterns, as did p2021.

As the bottom graph on Chart 3 indicates as well, the growth in revenues has been almost flatline since February 2022. That indicates that the May 2022 increase in interest rates had little effect nationally.

New South Wales

NSW showed a sharp uptick in revenue, as illustrated by Chart 4.

As the top graph shows, NSW was the only state to exceed revenues for May 2020 with its May 2022 revenues. The increase of over 10%, as shown in the bottom graph, lifted the revenues above those for p2018, which it had tracked closely from January to April 2022.

Victoria

The most notable feature of the VIC charts remains its February 2022 results, which failed - unlike in previous years - to track down sharply. As shown in the top graph, revenues continued to be relatively stable from January to May 2022, as shown in Chart 5.

While the growth rate has been positive since January 2022, it has continued to decrease since February 2022.

Queensland

QLD has continued to grow over p2021 for most of p2022, but showed a strong uptick in growth for March and April 2022, which then decreased in May 2022, which Chart 6 illustrates.

Though its revenues have started from a much higher point, the growth rate is similar to that of p2018.

South Australia

SA is unique in that it has shown steadily increasing, ongoing growth through p2022, reaching a high of almost 30% in May 2022, indicated in Chart 7.

Where the revenues from February to May of 2021 showed diminished growth, they have remained at stronger highs during those months in 2022. As with VIC, revenues for February 2022 did not go into the expected seasonal decline.

Western Australia

WA has shown consistent growth in the 10% to 15% range since December 2021, as shown in Chart 8.

It has remained in the usual seasonal pattern, with a slump into February 2022, followed by a recovery in March 2022.

Australian Capital Territory

While in August and September 2021 the ACT showed a decline in revenues back to pre-pandemic levels, this corrected sharply in September 2021, and revenues in p2022 have been above p2021 since then.

As Chart 8 indicates, revenues have come closer to those of p2021 during April and May 2022, which growth closing in on 5.0%.

Analysis

The results for May 2022 were likely deeply affected by features such as the federal election, and the cautious policy stance taken at that time. Certainly without the election, it's possible there would have been stronger interest rate rises announced earlier.

The upcoming revenue results for June 2022 should show more effects from both the increase in interest rates, and continued increase in inflation.