Household pain ends retail spending growth

Retail spending growth has stalled as households come under pressure from flat wages and rising debt and power bills.

Retail sales were weaker than expected in July. (AAP)

The strain of low wages growth and higher power bills on household budgets has led to a pause in retail spending growth in July.

Spending was steady in July at $26.1 billion, missing market expectations of a rise of 0.2 per cent from June.

The end of a run of three months of growth reflects a retail sector struggling with declining consumer sentiment, rising household debt, stagnant wages growth and a 15 to 20 per cent hike in utility prices on July 1, economists said.

RBC Capital Markets senior economist Su-Lin Ong said there could be further weakness in retail spending in the months to come.

"Today's data and the challenges for households ahead suggest a more modest pace of consumption in the current quarter and likely beyond," Ms Ong said.

Sales of household goods fell by a seasonally adjusted 1.7 per cent in July, and department store sales dropped 2.8 per cent, the third consecutive monthly slide.

But turnover improved in several areas of discretionary spending, with sales of recreational goods, including sports equipment and toys, up 2.5 per cent, and spending at cafes and restaurants up 0.2 per cent.

AMP Capital senior economist Diana Mousina said consumer spending is shifting away from traditional retail outlets and towards services, such as holidays, recreation and eating out.

But consumer sentiment is also low and wages growth is not keeping up with inflation.

"These cyclical pressures are unlikely to abate any time soon and may get worse due to rising utility prices, the high Australian dollar shifting demand for retail goods offshore and the impact of Amazon's physical arrival in Australia," Ms Mousina said.

JP Morgan economist Tom Kennedy said it is hard to see where a genuine acceleration in household spending might come from.

"We expect consumption growth to come under pressure in the coming months given the backdrop of record weak income growth, rising mortgage rates and sharp increase in electricity and gas prices," he said.