The latest Deloitte Access Economics' Retail Forecasts report paints a stronger picture for Australian retail, particularly for NSW and Victoria.
Last year saw retail growth of 3.6 per cent in real terms and 4.9 per cent in nominal terms - making it the strongest year for retailers since prior to the GFC.
This growth in retail spending occurred despite the fact that Australia’s unemployment rate has recently reached a decade high, and real wage growth remains painfully weak.
Instead, low interest rates, rising asset prices, and the willingness of consumers to gradually reduce their rate of savings have been powerful influences in lifting spending.
February’s interest rate cut from the RBA suggests this channel may have some further way to run.
But relying on cheap credit getting even cheaper is not a sustainable basis for a healthy rate of retail spending, and imbalances are building in Australia’s housing market.
Recent months have also brought another boost for retailers in the form of much cheaper petrol prices freeing up disposable income which can be directed to other forms of spending.
A fall in the price of unleaded petrol of around 26 cents per litre over the past four months is adding around 0.5 per cent to total disposable income.
That is a significant boost, particularly when you consider that in the wake of last year’s Federal budget there was considerable concern raised about the impact on consumers of the reintroduction of fuel excise indexation.
That measure will add around 1 cent to the price of fuel in its first year, which pales into comparison with the recent fall in petrol prices.
The fall in petrol prices leaves households with more to spend on other goods and services.
As a highly visible price, it is also likely to be supportive of broader consumer sentiment. The surge in consumer sentiment in February (which was partly reversed in March) can at least partly be attributed to the fall in petrol prices.
Hence the short term outlook remains good for retail, support by rate cuts and the bowser boost, even though the broader economy continues to move along at a sub-trend pace.
But given the nature of the current key supports, we may see retail sales moving to a slower growth rate by the end of 2015.
Overall, real (inflation-adjusted) retail sales growth is expected to come in at 3.4 per cent for 2014-15, an improvement on a very solid 3.1 per cent in 2013-14.
The 2014-15 financial year may however be the peak of the cycle for retail, with sales growth in 2015-16 expected to moderate to 2.3 per cent, with housing price growth and transactions slowing.
New South Wales and Victoria are punching well above their (considerable) population weights when it comes to retail spending performance at present.
Retailers are enjoying very buoyant conditions in these markets, particularly over the second half of 2014.
Indeed the healthy national real retail growth rate of 3.6 per cent over the past year is overwhelming driven by our largest two States – retail growth seen in the rest of Australia over the past year was just 0.9 per cent.
These numbers do highlight the economic pain coming through in resources States as the mining investment boom winds down.
The key stimulus to ward off that downturn (low interest rates) is gaining traction where it might least be needed, pumping up Sydney and Melbourne house prices, and encouraging more borrowing and spending as a result.
The recent decline in the $A may distribute economic benefits more broadly, so it is likely the NSW-Victoria dominance story will fade over the course of 2015.