The federal government's persistent warnings of tough measures in the run-up to the May budget may have spooked consumers into saving their cash, rather than spending at the shops, retailers say.
Australian Bureau of Statistics figures published on Wednesday showed retail spending dropped by 0.2 per cent in April to a seasonally adjusted $21.2 billion - in defiance of financial market expectations.
The monthly result was a sharp reversal from the 1.1 per cent increase in March.
Australian Retailers Association executive director Russell Zimmerman said it was disappointing because the sector was hoping for a boost after the April Easter holidays and the relaxation of trading hours in some states.
'The monthly decline shows consumers might have had more time up their sleeves in April but sadly no cash in their pockets,' he said in a statement.
Spending was particularly weak in household goods and department stores retailing, while there was a marginal rise increase in food and cafe and restaurant sales.
Australian National Retailers Association chief executive Margy Osmond said consumers had heeded government warning of a tough 2012/13 budget and 'shied away from making major purchases'.
Retailers are now hoping May sales will be better after the central bank cut interest rates this month and the budget turned out not as bad as expected.
'We will again be looking for further cash rate cuts so consumers feel safe enough to shop,' Ms Osmond said.
Financial markets are fully expect a 25 basis point cut in the Reserve Bank of Australia (RBA) cash rate to 3.5 per cent when the central bank board meets next Tuesday.
The retail figures coincided with the release of new construction figures for the March quarter, which highlighted the effects of the two-speed economy.
Construction grew by 5.5 per cent to $48.3 billion in the first three months of the year, and were 15 per cent higher from a year ago.
The strength was largely due to a booming engineering sector, which is benefiting from mining related projects.
Engineering work jumped 13.3 per cent in the quarter and a staggering 35.6 per cent over the year.
TD Securities head of Asia-Pacific research Annette Beacher said the strong engineering result increased the likelihood that next week's national economic growth report would be better than expected.
