- Fears about a slump in Australian retail sales in the lead-up to Christmas may be about to be realised.
- The NAB’s Cashless Retail Sales Index — an alternate spending indicator that has been reliable in the past — suggests retail turnover fell 0.3% in December.
- That result fits with other indicators that point to a bleak picture for Australia’s retail sector late last year.
- Financial markets are already believe the next move in the RBA cash rate is likely to lower. A result as weak as the NAB Index suggests will only solidify that view.
Fears about a slump in Australian retail sales in the lead-up to Christmas may be about to be realised.
According to the National Australia Bank’s (NAB) Cashless Retail Sales Index, an alternate spending indicator that accurately predicted the small lift in the official ABS measure in November, retail sales likely went backwards — and hard — during December.
“The Index rose 0.9% in December on a month-on-month basis, up from a 0.4% increase in November,” said Alan Oster, Chief Economist at the NAB.
“However, our data mapping suggests that the official ABS measure of retail sales will record a negative print in December, forecast to be down 0.3%.”
If the NAB Index is on the money again on this occasion, that would mark the largest fall in monthly in a year, and would surely see concern about a slowdown in the broader economy intensify as a result.
In November, the ABS measure of retail turnover grew by 0.4%, lifting marginally following a 0.3% gain in October. If sales went backwards in December as the NAB Index suggests, Oster says that will mean spending ahead of Christmas was “fairly weak”.
“While some Christmas spending was brought forward to November by way of the ever more popular Black Friday and Cyber Monday sales, the reality is that consumers were reluctant to spend over Christmas and that underlying spending is lacklustre, underlined by a number of retailers starting the Boxing Day sales before Christmas itself,” he says.
“Low wage growth, high personal debt levels and a weakening housing market — particularly in Sydney and Melbourne — have made consumers reluctant to spend on non-essentials.”
The Cashless Retail Sales Index — as the name suggests — uses personal transaction data from NAB platforms to track electronic spending patterns. Based on around two million transactions per day, it provides an early and often reliable indication on retail spending patterns across the nation.
The differential between the NAB and ABS measures reflects that the latter includes cash sales, explaining why the NAB adjusts its measure to better mirror usual spending patterns seen based on historic data.
While we will have to wait until February 5 for the ABS December retail sales report, it’s not only the NAB that’s seen anecdotal evidence of a sharp slowdown in retail sales.
According to a separate report released by the Commonwealth Bank earlier this month, credit card spending on retail items processed through the bank’s network slumped by 3.7% from the start of November through to early January compared to the same period a year earlier.
Another report from Citi research, citing data from ShopperTrak, foot traffic at Australian shopping malls from the start of Black Friday sales in late November to Boxing Day fell by around 9% this year compared to the same period in 2017.
Combined, it all points to a worrying picture on retail spending late last year.
While retail sales makes up less than a third of broader household consumption — the largest part of the Australian economy at over 50% — these alternate measures suggests the weakness in household spending seen in the September quarter extended into the final three months of the year.
That will be a concern to policymakers at the Reserve Bank of Australia who are banking upon household consumption to lift to around 3% per annum both this year and next in order to keep GDP growth humming along at levels consistent with lower unemployment and faster wage and inflationary pressures.
It also explains why the RBA continues to describe the outlook for household consumption as one continuing area of uncertainty.
After a steep slowdown in the Australian economy in the September quarter last year, the prospects for growth of 3.25% this year and in 2020 — as the RBA expects — appears to be diminishing rapidly given weakness in other areas of the Australian economy, increasing the risk the bank may be forced to abandon its view that the next move in the cash rate is likely to be higher.
Financial markets think the RBA may have to go one step further than that, pricing in a 50% chance that the cash rate may be cut by 25 basis points by November this year.
An increasing number of economists are also starting to forecast that the next move in official interest rates will be down, not up. Many others who were previously forecasting that rates would rise later this year have also pushed back or abandoned their previous views.
While we’re still yet to receive official confirmation on retail sales and broader household consumption for the final three months of last year, most indicators, including a recent fall in consumer sentiment, suggest all is not well with the largest and most important part of the economy.