Australian retail sales hit four-and-a-half year low

Australian retail sales dived in August taking the Aussie dollar along for the ride as it slipped from as high as $0.7865 to as low as $0.7816 after the data was released, as growing optimism that the recent downturn would reverse took a serious blow.

According to a research report released on Thursday by the Australian Bureau of Statistics (ABS), nominal spending dropped 0.6% in August, coming in significantly short of the 0.3% increase forecast laid out by Reuters.

Adding to what Commonwealth Bank senior economist Gareth Aird referred to as "a shocker" – the ABS revised July's retail figures down to a 0.2% fall from a previous flat rating.

Food retailers, cafes, restaurants, takeaway food services, household goods and clothing, footwear and personal accessories sectors saw the biggest drops in what was the biggest decline since early 2013.

"The big question for the outlook is why retail sales as a whole fell in August," said Tapas Strickland, a National Australia Bank (NAB) economist. "NAB's transaction data suggested this, however, there was no obvious macro events to explain such weakness."

Strickland noted that higher energy prices and "warnings that the next move in interest rates is likely to be up" could have played a role in the decline.

ANZ's Jo Masters had predicted a 0.2% slip, citing "higher petrol prices, lower house price growth, weakening consumer confidence and soft anecdotes" as factors.

The debt-to-income ratio in Australia hit a new high of 194% in 2017 as Australians saw more than two-thirds of their income tied-up in mortgages and wage growth continued to flat line at 1.9% - the lowest rate since the early 1990's recession Down Under.

"Overall, the trend in retail is likely to remain subdued until wages begin to strengthen given debt levels and a hesitant consumer, while online retail will continue to challenge bricks and mortar retailers," Strickland said.

The Reserve Bank of Australia (RBA) left its benchmark interest rates at an all-time low of 1.5%, with Governor Philip Lowe saying the bank would wait until consumer spending was stronger and wage growth had risen before reassessing the rate. Bill Evans of Westpac suggested that a rise may not take place until 2020.

Market reaction was mixed after the ABS report as shares in Myer, Harvey Norman and JB Hi-Fi all closed down, despite department stores being one of the only retail sectors to report an increase, while grocers Woolworths and Wesfarmers both posted gains.

The ASX benchmark as a whole ended the day flat at 5,651.8.