The early evidence suggests Australia's retail sales revival in February was short-lived

Picture: STR/AFP/Getty Images
  • Australian retail sales rose by 0.6% in February, the strongest percentage increase since November 2017.
  • The NAB’s Cashless Retail Sales Index, an indicator that predicted the recovery in spending in February, suggests sales growth slowed sharply in March.
  • Australia’s official March retail sales report will be released on Tuesday, May 8.

After a pretty terrible Christmas and New Year period, Australian retail sales jumped sharply in February, offering hope that stronger job market conditions and improved consumer sentiment was finally starting to translate to increased spending at the shops.

According to the Australian Bureau of Statistics (ABS), sales rose by 0.6% during the month, doubling the median economist forecast for an increase of 0.3%.

It was the largest percentage increase since November 2017 with sales increasing in all categories, indicating that the improvement was broad in nature.

However, one swallow does not a summer spending revival make. What matters now is whether the spending revival continued into March.

While we still have a couple of weeks to wait until the official ABS report is released, the early indications aren’t looking all that good.

According to the National Australia Bank’s (NAB) Cashless Retail sales report, an indicator that predicted the spending recovery seen in February, sales growth slowed sharply yet again in March.

“Our mapping of the ‘official’ ABS measure implies a relatively flat outcome in March,” said Alan Oster, chief economist at the NAB. “[The mapping] suggests monthly growth of 0.2% in March compared to our forecast last month of 0.7%.”

“While the latter was close to the February ABS print of 0.6%, it is important note the divergence in the two series at the start of the year.”

This chart from the NAB shows how the NAB report has fared compared to the ABS data going back to the start of 2015.

Source: NAB

The recent divergence may have been caused by the later than usual iPhone model release last year, along with prominence of Black Friday sales in Australia. As these are relatively new or one-off events, they may have contributed to recent volatility in the ABS’ seasonally adjusted series.

Regardless, even with some recent under and overshoots from the NAB estimates, it’s clear the report has a reasonable relationship with the ABS data. That alone gives the NAB report some credibility when it comes to a lead indicator on spending.

The NAB index measures all cashless retail spending by consumers using debit and credit cards, BPAY and Paypal. It is derived from personal transaction data from the NAB’s platforms, capturing around 2 million transactions per day.

Australia’s March retail sales report will be released on Budget day, Tuesday May 8.

On the early evidence, it’s likely to be disappointing.

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