Australian retailers hit by worst sales decline in 4-1/2 years

By Swati Pandey and Wayne Cole

SYDNEY (Reuters) - Australian retailers suffered their worst decline in sales since early 2013 as debt-laden consumers tightened their purse strings, slashing spending on food, furniture and clothing, an outcome that bodes poorly for third-quarter economic growth.

Thursday's data from the Australian Bureau of Statistics (ABS) showed retail sales dropped 0.6 percent in August, confounding expectations for a 0.3 percent increase. July was also revised down to show a 0.2 percent fall.

The 0.8 percent slump in July and August is the biggest back-to-back fall since October 2010.

In response, the Australian dollar skidded 0.4 percent to $0.7829, down from a one-week high of $0.7875 set on Wednesday.

Australia's retail sector had shown some signs of life earlier in the year, but that recovery was short-lived as sluggish wages and household incomes sapped spending power.

The data casts a shadow on the Reserve Bank of Australia's (RBA) forecasts for the A$1.7 trillion economy to accelerate at 3 percent over the next two years.

The RBA has long feared ballooning debt in Australia's red-hot property sector was limiting consumers' ability to spend elsewhere in the economy, one reason it has held rates at an all-time low 1.50 percent since August 2016.

"On the face of it, this is not good news for third quarter GDP growth," said Michael Workman, a senior economist at CBA.

"Though, it should be noted that a fall in sales this broad is very strange," he added. "We aren't hearing anything like this sort of weakness from our clients, and people are still spending on cars and services. It's just very odd."

The ABS figures showed falls across every single state, a rare occurrence, with food, eating out and household goods leading the losses. Department stores did gain 0.7 percent, but that followed a sharp drop of 2.6 percent in July.

Indeed, Australia's biggest department store operator Myer this month posted its lowest annual profit since listing with sales down 2.7 percent in the year to July 29.

ONLINE BOOST

Not all is doom and gloom. The ABS's experimental estimates of online retail turnover jumped 6.3 percent in August from the previous month and were rapidly catching up to last year's Christmas sales.

The online numbers are not yet part of the headline retail series and are not seasonally adjusted. The ABS estimates the sector is worth around A$13 billion a year, compared to A$300 billion in traditional sales.

Online activity is, however, expanding much more rapidly.

Analysts at NAB estimate annual growth in online turnover actually accelerated last month to around 10 percent, from 8.5 percent in July, and worth more like A$23 billion over the 12 months to August.

A separate ABS survey of household spending this week showed Australians are shelling out more money on holidays, health insurance and school fees - none of which are reflected in the retail sales numbers.

There was slightly better news on the country's trade surplus which widened to $989 million in August, topping market forecasts of $875 million.

Yet the weakness in retail was mirrored in the numbers with imports of consumer goods dropping 4 percent in the month.

(Reporting by Swati Pandey and Wayne Cole; Editing by Eric Meijer & Shri Navaratnam)