Australian retail sales recorded a shock decline in December, according to the data released by the ABS this morning.
However, despite the worrying decline, retail sales volumes rebounded strongly over the quarter, something that bodes well for Australia’s Q4 GDP report that will be released in early March.
In nominal terms, the ABS said sales fell by 0.1% to $A25.61 billion in seasonally adjusted terms, missing expectations for an increase of 0.3%.
It was the first monthly contraction in retail sales since July 2016.
November’s figure, previously reported as an increase of 0.2%, was also revised lower to just 0.1%.
As a result of both those outcomes, annual retail sales growth slowed to just 3%, down from 3.2% in November and the slowest pace seen in six months.
The ABS said sales of household goods (-2.3%) and “other” retailers (-0.2%) both declined in December, offsetting increased sales of food (0.5%), clothing, footwear and personal accessories (1.4%), cafes, restaurants and takeaway food services (0.2%) and department stores (0.3%).
In particular, the ABS said that the drop in household goods retailing was largely due to a sharp 6.6% decline in sales of hardware, building and garden supplies.
It was the largest monthly contraction for sales in this category since July 2000.
This huge decline may have been due to the closure of the Masters hardware chain in early December, and may explain why sales in this sub-category also increased strongly in the prior four months.
Sales were likely brought forward ahead of this closure due to heavy discounting in an attempt to clear stock, and may explain why sales fell so heavily in December.
So while total sales were still weak, the decline reported in December may have been due to one-off factors.
By state and territory, the ABS said sales slipped in Victoria (-0.4%), New South Wales (-0.3%) and the Australian Capital Territory (-0.7%), offsetting strong performances from South Australia (1.2%), Western Australia (0.6%), the Northern Territory (1.1%) and Tasmania (0.5%).
Sales in Queensland were flat from a month earlier.
The chart below looks at the performance of sales over the past 12 months, breaking the result down by category and location.
Despite the weak December result, there was better news when it came to the outlook for Australian Q4 GDP with retail sales volumes rising strongly over the quarter.
The ABS said that volumes — which eliminate the effect of price movements seen during the quarter and equates to around 30% of household consumption — jumped by a solid 0.9%.
That result was in line with market expectations, and followed a flat reading in the prior quarter that was previously reported as a drop of 0.1%.
It will feed into household private expenditure, the largest component within Australian GDP, and make a positive contribution to the Q4 reading.
The ABS said that the main contributors to the increase were strong volumes growth in household goods (2.5%), clothing, footwear and personal accessories (1.5%) and in food retailing (0.3%).
The strength in household goods volumes, like the December retail sales figure, may have been impacted by heavy discounting from Masters ahead of its closure.
The reaction to the report has been muted, with the Australian dollar, ASX 200 and Australian government bond futures largely unchanged.
This may represent uncertainty over the reason behind the drop in nominal retail sales reported in December, or may also be due to the positive implications for Australian Q4 GDP as a result of the boost in sales volumes given it accounts for around 30% of household consumption with the remainder made up by services.