Positive retail sales outlook for WA

Retail sales in Western Australia are forecast to surge more than 4 per cent in fiscal 2012 after a slight contraction the year before as the economy feels the effects of higher unemployment as the current pipeline of projects dries up, new figures show.

The latest retail forecasts from Access Economics tip WA's retail sales will increase by 1.7 per cent this financial year and continue the positive trend in the following year with a growth of 1.3 per cent.

However, retail sales will contract slightly by 0.1 per cent in 2010-11 as the current pipeline of projects is worked through, Access said.

"Despite continuing healthy signs from the LNG sector, there won't be enough new projects to replace those winding up," it said.

"Although WA's unemployment numbers are still lower than the Australian average, they are starting to increase and the earlier rampant pace of wage gains is losing momentum."

WA's unemployment rate fell from 4.9 per cent to 4.5 per cent in April.

Despite the contraction in the 2011 financial year, WA retail sales will surge in fiscal 2012, up 4.6 per cent and then increase by another 4 per cent the following year.

Nationally, retailers face a tough 18 months as unemployment rises and the positive impact from the federal government's cash handouts fades, a respected independent forecaster says.

A report by Access Economics says retail sales are unlikely to achieve a respectable level again until the jobless rate stops rising - possibly not until early 2011 on the forecaster's estimates.

In the May budget, the Rudd government forecast the jobless rate to rise to 8.25 per cent by the middle of next year and 8.5 per cent by mid-2011.

It was 5.4 per cent in April.

Access said that at most, only around one-quarter of the $21 billion in cash handouts had so far been spent, with the potential for some more to trickle out over the coming months.

"While that represents a very modest result for the policy objectives of the cash handout, it has still been enough to provide good support for retail spending," Access director David Rumbens said.

Between November 2008 and April 2009 retail sales grew by 4.8 per cent.

Food and clothing retailers have been the main beneficiaries of the cash handouts, while department stores and the household goods sector have continued to struggle.

However, Mr Rumbens expects retail sales to begin to reflect the underlying weakness in the domestic economy from around June.

"The cash is out of the bag, so to speak, and the tide has certainly turned on this type of stimulus spending ... retailers are unlikely to see any further gifts from the government," he said.

"Interest rates remain at very supportive levels and could go lower, but a sharply rising unemployment rate, weak consumer confidence, and house prices in trouble amid weak debt levels, will certainly dampen the retail sales outlook."

Access is forecasting real (inflation adjusted) retail sales growth of 1.3 per cent in 2008/09, before declining 0.3 per cent in 2009/10 and then growing just 0.1 per cent in 2010/11.

A strong retail recovery may emerge in 2011 as the unemployment rate peaks and starts to turn down, interest rates remain low and a strong housing recovery emerges, he said.

The Reserve Bank of Australia's (RBA) cash rate sits at a 49-year low of 3.0 per cent after 425 basis points worth of easing between September last year and April.

RBA governor Glenn Stevens said last week he did not rule out a further cut in the rate in coming months.

Mr Rumbens said the relative importance of interest rates can vary between the states.

NSW and the ACT are experiencing somewhat more of a positive influence on retail sales than is the case in the remaining states, thanks to the relatively higher prices of housing and therefore debt burdens.

"Job prospects are the main issue, however, and we expect further job losses will be felt reasonably broadly by industry and geographically," Mr Rumbens said.

The Northern Territory is the only standout with retail spending buoyed by strong construction activity.