Australia’s retail sales fall as clothing demand weakens

Australian retail sales unexpectedly fell in April after three months of gains, led by a decline in clothing purchases and prompting traders to bring forward expectations for a third interest rate cut this year.

Sales dropped 0.1% in April from a month earlier, compared with a forecast 0.3% increase, figures from the Australian Bureau of Statistics showed Friday. The decline caps a week of dour economic data including private capital investment, which fell in the first quarter against economist expectations for a gain, and construction work done, which was flat, again confounding estimates for a rise.

The data added to expectations that the Reserve Bank of Australia will continue cutting rates, especially with US President Donald Trump making it clear that he wants tariffs to stay in place. Swaps traders are fully pricing in three more cuts for the year, with yields on three- and 10-year government bonds down about 10 basis points.

Prior to Friday’s report, markets were fully pricing in two cuts this year.

The weakness in Friday’s data “is one indication that households are being a little cautious in the face of rising global uncertainty,” said Ben Udy, lead economist for Oxford Economics Australia. “Unless consumption picks up a little more strongly in the coming months, the RBA may cut rates even sooner than we currently expect.”

Retail sales can be an important consideration for monetary policy, as consumption accounts for more than half of gross domestic product. The Reserve Bank has repeatedly highlighted the outlook for household spending as a key uncertainty as it considers cutting interest rates further.

Friday’s data also showed:

• Annual retail sales climbed 3.8% in April.
• There were mixed results across industries, with the largest falls in clothing, footwear and personal accessory retailing, and department stores — both down 2.5%.
• Food-related spending continued to rise, with growth in cafes, restaurants and takeaway food services up 1.1%. This was partially offset by a fall in food retailing, which declined 0.3%.

The ABS intends to cease the publication of retail sales data from July. It is switching to a more comprehensive monthly report on household consumption that will be released Thursday.