Australia’s retail sales report for December has missed expectations, coming in flat against forecasts for an increase of 0.5%.
At 0.02%, it was the smallest monthly increase since July 2015, where sales decreased by 0.1%.
Over the year sales grew by 4.19% to $24.759 billion, a slight deceleration on the 4.3% pace seen in the 12 months to November.
According to the ABS, sales increased in food retailing (0.8%), clothing, footwear and personal accessory retailing (1.1%) and department stores (0.1%) in seasonally adjusted terms.
Offsetting those increases, sales fell for household goods retailing (-1.0%), other retailing (-0.9%) and cafes, restaurants and takeaway food services (-0.5%).
Despite the large 1% fall in household goods sales, something that adds to evidence that housing market conditions continue to cool, the category still recorded the fastest annual percentage growth at 6.3%. This was followed by clothing, footwear and personal accessory retailing and Department store sales at 4.7% and 4.6% respectively.
Suggesting that eating out is falling out of favour with consumers, sales in cafes, restaurants and takeaway food outlets recorded the slowest annual increase at 2.9%. Food retailing, the largest category by dollar spend, saw sales increase by 3.7% from 12 months earlier.
Like the performance by category, turnover across the nation was mixed.
Sales increased in the Australian Capital Territory (2.4%), Queensland (0.2%), New South Wales (0.1%), South Australia (0.2%) and the Northern Territory (0.3%), but fell in in Western Australia (-0.6%), Victoria (-0.1%) and Tasmania (-0.6%).
For the year Victoria recorded the fastest annual percentage increase in sales at 5.8%, followed by the Australian Capital Territory and New South Wales at 5.5% and 5.0% respectively.
Sales in Western Australia, the Northern Territory, Queensland and South Australia were subdued, fitting with weak economic conditions as a result of the unwinding mining capital expenditure boom.
For the December quarter retail volumes, adjusted for price movements, increased by 0.6%, the same level recorded in Q3 but below market forecasts for a gain of 0.9%. Despite the miss, this will make a positive growth contribution to private sector consumption in the upcoming December quarter GDP release.
While the December retails report was a disappointment, one month does not make a trend. Sales volumes held up during the quarter, fitting with recent improvements in Australia’s labour market.
However, the sharp drop in household goods retailing, along with a continued moderation in sale growth in New South Wales and Victoria – those states that made up the vast bulk of retail sales growth in 2015 – points to cooling housing market conditions across Australia’s eastern states.
Should this trend continue, particularly if labour market conditions follow suit as they did in response to the housing market boom, it will place pressure on economic growth should household consumption cool.
At a time when Australia is transitioning away from mining sector investment to growth powered by services and consumption, any weakness from households will be felt and see the odds for further interest rate cuts from the RBA increase.