Things are suddenly looking a lot brighter for Australia's retail sector

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After a less-than-stellar September quarter, things are suddenly looking a lot brighter for Australia’s retail sector.

Consumer confidence, as measured by Westpac, hit a four-year high in December, coinciding with a 0.5% rebound in retail sales in October, according to data released by the Australian Bureau of Statistics (ABS) earlier this month.

And economy-wide spending, according to data from the Commonwealth Bank released today, continued to improve in November, offering hope that household spending is rebounding following the weakest growth since the GFC in the September quarter.

Well, the promising signs just keep on coming.

According to the National Australia Bank’s (NAB) Cashless Retail Sales Index, retail sales soared by 1.6% last month, thanks to a surge in spending on household goods.

“[It] was boosted by strength in household goods retailing, particularly the electrical and electronic goods sub-category [which grew by 6.1%] in the same month that the new iPhone was released,” the NAB said.

“There were also robust increases in spending at department stores, “other retailing” and cafes, restaurants and takeaways.”

So while the surge was likely boosted by the later-than-usual release of the new iPhone, solid increases were also recorded in other areas, including in discretionary areas.

“It is possible that sales may have been boosted by the release of the latest iPhone in a different month from previous years, as there was notable strength in the electrical and electronics sub-component,” said Alan Oster, Chief Economist at the NAB. “However this does not fully explain the result.”

The index measures retail spending by NAB customers using debit and credit cards, BPAY and Paypal, taking information from around 2 million transactions per day to spot underlying trends in spending behaviour. As a bank with a large customer base, the trend is likely reflective of what is being seen at other financial institutions.

The NAB says it is “reasonably assumed to be representative of aggregate non-cash retail sales in Australia given its large sample size”.

Like the separate Business Spending Indicator from the Commonwealth Bank, Oster said the strength in the November report was evident across most parts of the country.

Source: NAB

“The recent pickup in the pace of spending appears relatively broad-based across the states,” he says.

“The ACT is the standout, with New South Wales, Victoria and South Australia also showing healthy growth.

“Sales growth is a little slower in Queensland, but has picked up to a solid rate.”

The one exception came from Western Australia, a state still emerging from a period of economic weakness following prior declines in mining investment and commodity prices.

“[It] remains weak though thankfully not negative as we saw in the months of August and September,” Oster said.

So, based off electronic spending by the NAB’s customer base, retail sales boomed in November with improvement seen across most states and territories.

But did that translate to spending using other forms of payment such as cash?

While we won’t know that answer for sure until the ABS releases Australia’s November retail sales report in early January, Oster says the strength in the NAB index points to another modest increase in the official measure, adding to the 0.5% bounce seen in October.

“Our data and mapping techniques imply a monthly increase in the “official” ABS measure of retail sales of 0.4% in November, which would see the yearly pace of growth pick up a little,” says Oster.

“This is a welcome improvement, although spending growth still remains low by historical standards.”

This chart from the NAB shows the monthly relationship between the index to Australia’s official retail sales report. While not a perfect relationship, it’s still a more than useful guide on what may be seen in the ABS figures.

Source: NAB

In the minutes of its December monetary policy meeting, the Reserve Bank of Australia described the outlook for household consumption as a “significant risk, given that household incomes were growing slowly and debt levels were high”, an amplification of concerns following a 0.1% increase in household consumption in volume terms in the September quarter, the weakest outcome since late 2008.

It added that recent liaison with retailers suggested that “moderate growth in consumption had continued into the December quarter”.

Following the recent improvement in consumer-related data, the RBA would be undoubtedly pleased to see that replicated in the official numbers.

If it looks like a duck and quacks like a duck, hopefully it is a duck, to put it another way.

NOW READ: There’s suddenly a glimmer of hope for Australia’s beleaguered retail sector, but there are still plenty of reasons for caution

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