Australian retailers suffer worst sales in 4½ years as hefty mortgages push up household debt

SYDNEY (REUTERS) - Australian retailers suffered their worst sales since early 2013 in August as debt-laden consumers tightened their purse strings, cutting back sharply on food, furniture and clothing.

Data on Thursday (Oct 5) from the Australian Bureau of Statistics (ABS) showed retail sales dropped 0.6 per cent in August, confounding expectations for a 0.3 per cent increase. July was also revised down to show a 0.2 per cent fall.

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

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

The data will be a worry for the country's central bank which has long feared ballooning debt in Australia's red-hot property sector was pinching consumers' ability to spend elsewhere in the economy.

The Reserve Bank of Australia (RBA) has held policy rates at an all-time low 1.50 per cent after last easing in August 2016 as it balances tepid inflation and slow wages growth against record high household debt.

Australia's retail sector has been struggling in recent years amid cutthroat competition and as relentless price discounts fail to entice customers to splurge on new clothes, shoes and gadgets.

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

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

The weakness in retail was mirrored in the numbers with imports of consumer goods dropping 4 per cent in the month.

Exports rose 0.5 per cent thanks largely to a 10 per cent rebound in iron ore, the single biggest earner, which helped offset falls in coal and gold.

Figures from Port Hedland, the biggest shipper in the country, had already shown a 13 per cent pick-up in iron ore exports in August from the month before.

Prices had also been buoyant, topping US$75 a tonne on strong demand from China where steel production was hitting record levels. Attempts by Beijing to shut high-emission steel plants was also fuelling demand for Australia's higher grade, and thus less polluting, iron ore.

The good times failed to last through September, however, with iron ore futures traded in China suffering their biggest monthly drop in more than a year.