Australian retail spending for the Christmas was far weaker than many were expecting

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Australia’s December retail sales report has come in well under expectations, partially reversing a strong lift in November.

According to the Australian Bureau of Statistics (ABS), sales fell by 0.5% to $ 26.261 billion in seasonally adjusted terms, missing forecasts for a smaller decline of 0.2%.

Offsetting some of the weakness, November’s stellar gain of 1.2% was revised higher to show an increase of 1.3%.

With sales retracing during the month, the annual pace of sales slowed to 2.5% from 2.9% in November.

As seen in the chart below, after some promising signals in recent months, the December decline was sharp — the largest in percentage terms since August.

“There were falls for household goods retailing (2.6%) and other retailing (1.8%) following strong rises in November ,” said Ben James, Director of Quarterly Economy Wide Surveys at the ABS.

These categories were boosted in November by later-than-usual release of the latest iPhone model, along with the increasing impact of Black Friday and Cyber Monday sales.

Sales also fell in department stores (0.6%), cafes, restaurants and takeaways (0.1%), and clothing, footwear and personal accessory retailing (0.1%).

Helping to partially offset those declines, the value of food retailing rose by 0.7%.

Like sales by category, there were also broad based declines reported across most Australian states and territories.

“There were falls in Victoria (0.8%), New South Wales (0.4%), Western Australia (0.8%), Tasmania (1.6%), the Australian Capital Territory (1.5%), South Australia (0.3%), and the Northern Territory (0.7%),” the ABS said.

“Queensland was relatively unchanged in seasonally adjusted terms.”

Callam Pickering, APAC Economist for global job site Indeed, said the December result rounds off what was a poor 2017 for Australian retailers.

“We have seen retail spending slow across all states and industries over 2017, completing one of the worst years for retail in a quarter century,” he said following the release of today’s report.

“A couple of distinct trends are emerging.

“First, the weakness is more concentrated in discretionary items such as household goods and clothing and footwear. With household budgets tight, due to low wage growth and high debt, discretionary purchases are often the first to be delayed when difficulties arise.

“Second, conditions in the two mining states, Queensland and Western Australia, are much worse than in the non-mining states.”

While 2017 was not the best of years for the sector, Pickering says there are grounds for cautious optimism as to what the future holds.

“There is some light at the end of the tunnel for Australian retailers,” he says.

“Employment growth was strong throughout 2017 and improved business conditions suggests that this should continue into early 2018. This should provide some support for the retail sector and household spending more broadly.”

Even with the weakness seen in December, quarterly sales volumes still rose by 0.9% in seasonally adjusted chain volume terms, something that will contribute around 0.2 percentage points to Australian Q4 GDP.

“Turnover rose 0.9% in the December quarter 2017 following a rise of 0.1% in the September quarter,” the ABS said. “The rise in volumes was led by household goods (3.4%), which benefited from strong promotions and the release of the iPhone X in November.”

Retail sales volumes account for around 30% of household consumption. Household consumption makes up just under 60% of Australian GDP.

“This sets up a solid base for private consumption in Q4,” said Jo Masters, Senior Economist at ANZ Bank.

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