- Based on spending patterns from NAB customers, it looks like Australian retail sales improved in November.
- The NAB says this could reflect the impact of Black Friday and Cyber Monday sales.
- It cautioned that without these sales, underlying sales were likely “somewhat weaker”. It also warned this could detract from sales in December.
- NAB Chief Economist Alan Oster describes the outlook for Australia’s retail sector as “likely to remain relatively weak”.
If the customers of the National Australia Bank (NAB) are any guide, Australian retail sales look like they were pretty good last month.
However, there’s a caveat that we’ll get to in a minute.
The NAB’s cashless retail sales index rose by 0.6% in November in seasonally adjusted terms, the same pace seen in October, leaving total non-cash sales up 9.1% from 12 months earlier.
The NAB index uses personal transaction data from the bank’s payment platforms, including spending using debit and credit cards, BPAY and Paypal. The bank says it is “reasonably assumed to be representative of aggregate non-cash retail sales in Australia given its large sample size”.
In other words, reflective of broader sales patterns across the country given the sample size.
Now, obviously not all is done electronically, meaning the NAB index is only measuring part of a part of total retail sales over a particular period.
In order to assess total retail spending, the NAB has “mapped” its index to patterns in official Australian retail sales data, providing an early indication on what’s likely to be seen in the official data when it is released.
In October, it said the outcome was pretty good.
“Our data mapping suggests that the official ABS measure of retail sales will grow at 0.4% month-on-month in November, up slightly from the 0.3% ABS print in October,” said Alan Oster, Chief Economist at the NAB.
However, there’s a catch.
“November saw extensive promotion of Black Friday and Cyber Monday sales — relatively new events for Australia,” Oster said.
“These events are unlikely to be fully captured by the current seasonal adjustment patterns just yet, which means the underlying result is likely somewhat weaker.
“Furthermore, these events have probably brought forward some Christmas spending, which points to a downside risk for December retail sales.”
So not only may the November data not be truly reflective of actual retail spending given problems with adjusting for seasonality, but by offering steep sales discounts in late November, this bringing forward of demand could see sales slow sharply, or worse, in December.
Whether that eventuates or not remains unclear. We’ll have to wait for the data — both from the NAB and the ABS.
However, from a longer-term perspective, Oster isn’t overly optimistic about the outlook for the retail sector.
“We believe a confluence of headwinds will continue to weigh on consumer spending over the next two years,” he says.
“Ongoing weak wage growth has weighed on household income growth for some time.
“While it appears to date that households have maintained spending by reducing their rate of saving, this cannot continue indefinitely. High debt levels and slower growth in household wealth are also likely to weigh on sentiment.
“Therefore we think the outlook for the retail sector is likely to remain relatively weak.”
At its December monetary policy meeting, the RBA Board offered similarly cautious views towards broader household consumption, acknowledging again that “the outlook for household consumption continued to be a source of uncertainty because growth in household income remained low, debt levels were high and housing prices had declined”.
It also added that “this combination of factors posed downside risks” to its view that household consumption will grow by around 3% per annum both this year and next.
Australia’s official retail sales report for November will be released on January 11, 2019.
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