- Two data points this morning – NAB’s Cashless Retail Sales data and Westpac’s Leading Index – were both cause for cautious optimism on Australia’s economy.
- The RBA is still positive on the outlook for domestic consumption – which comprises 60% of GDP — a view reinforced in yesterday’s board minutes.
- Despite that, recent measures of consumer confidence show Australian households are growing more anxious about their finances.
Australian households continue to navigate the dual negative threats of high household debt and low wage growth.
But data from NAB this morning suggests Australia’s long-struggling retail sector is still holding strong.
And Westpac’s Leading Index — and indicator of economic growth over the next six months — just staged a sharp comeback from the previous month.
The two data points this morning dovetail to some extent with the RBA’s more positive view towards Australia’s growth prospects — a shift which JP Morgan rates strategist Sally Auld called “a reasonably significant development”.
In her review of the central bank’s board minutes yesterday from its August meeting, Auld said “the RBA is now less uncertain about the outlook for household consumption”.
NAB’s Cashless Retail Sales Index for July gained 0.9% in monthly terms, following a 0.5% increase in June.
The index is derived from transaction data on NAB platforms, comprising around two million transactions per day. Cashless sales are typically a good indicator for the monthly retail print, which comes out in early September.
And Australia’s retail sector — consistently the worst performing industry in recent years — has been on something of a roll lately, with retail sales beating expectations for the last three months in a row.
Slightly tempering today’s results, NAB said it still expects retail sales growth to increase in July, but only just.
“Our data mapping suggests that the official ABS measure of retail sales will rise only very slightly in July – up 0.1% on a month-on-month basis,” NAB said.
Four of the six sub-indexes improved in July, with growth increasing for food, household goods, other retailing and cafes & restaurants.
Clothing & footwear sales still rose but at a slower rate, while department store spending turned negative.
The result coincides with recent falls in consumer confidence, both in Westpac’s monthly index and ANZ’s weekly measure.
It’s perhaps a reflection that household consumption is being driven by the purchase of essential items, rather than discretionary spending.
Elsewhere, Westpac’s Leading Index rebounded strongly after a sharp fall in June — a possible indicator that economic growth will hold in line with the RBA’s projections in the second half of the year.
The Index rose to a reading of +0.55% in July, after turning negative in June (-0.06%) for the first time in 2018.
The Index is comprised of multiple inputs including commodity prices, interest rate spreads, and employment indicators such as total hours worked.
The results of the Index so far this year indicate that growth will be stronger than even Westpac itself expects.
“Over the course of the last six months the Index has only dipped below zero on the one occasion which was last month,” said Westpac chief economist Bill Evans.
“That is sending a more positive signal around the growth outlook than we are expecting at Westpac. We are expecting growth over the remainder of 2018 and into 2019 to hold slightly below trend.”
In its latest set of economic growth forecasts, the RBA said it expects GDP to grow by 3.25% through to the end of 2019.
JP Morgan’s Auld said “better news on disposable wage growth” is the source of the RBA’s optimism, with yesterday’s minutes citing minimum wage increase, personal income tax cuts, and signs of a tighter labour market.
These developments are “lessening the uncertainty around the outlook for household consumption”, which “removes a key source of the downside risk bias to the bank’s GDP forecasts”.
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