Australian retail finally shows signs of life

  • Australian retail sales grew by 0.6% in February, double the level expected.
  • Gains were recorded across all categories, led by spending in discretionary areas.
  • The timing of Chinese New Year holidays may explain the unusually large increase.

Australia’s retail spending strike came to an abrupt end in February with sales improving across the board during the month.

According to the Australian Bureau of Statistics (ABS), sales rose by 0.6% to $24.45 billion in seasonally adjusted terms, doubling the median economist forecast that was looking for an increase of 0.3%.

It was the largest percentage increase since November 2017.

January’s figure, originally reported as a gain of 0.1%, was also revised to show an increase of 0.2%.

As a result of the strong February increase and upward revision to January’s data, the annual increase in sales rose from 2.1% to 3%, the fastest increase since July last year.

“All industries saw rises in February” said Ben James, Director of Quarterly Economy Wide Surveys at the ABS.

“[This was] led by household goods retailing (1.1%), food retailing (0.3%), cafe’s restaurants and takeaways (0.7%) and clothing, footwear and personal accessories (1.1%).

“Department stores rose 1.5% after falls in each of the preceding three months while other retailing also rose by 0.2%.”

Excluding food, and providing a better overall indication on discretionary spending patterns, sales rose by an even larger 0.8% over the month. From a year earlier, sales ex-food also outperformed, rising 3.3% from 1.8% in January.

“Combined, the rise in the discretionary areas of spending was the biggest since last November, when technology sales were inflated by the release of the new iPhone,” said Stephen Walters, Chief Economist at the Australian Institute of Company Directors.

“Without that fleeting technology effect, today’s result is the best since last May.”

By state and territory, sales surged in New South Wales and Victoria, lifting by 1.1% apiece. Sales in Northern Territory rose by the same margin, while gains of 0.7%, 0.5% and 0.3% were seen in South Australia, the ACT and Tasmania respectively.

Western Australia and Queensland were the only states to register declines, falling 0.6% and 0.3% respectively.

As has been seen in recent Chinese economic data, the shifting timing of Chinese New Year celebrations may have contributed to the unusually large increase in February.

Chinese New Year started in mid-February this year, later than in 2017 when it occurred in late January.

China is Australia’s largest source of inbound tourist arrivals, with numbers growing rapidly. The vast majority of Chinese visitors enter Australia through Sydney and Melbourne.

This suggests Chinese New Year could be influencing the ABS’ seasonally adjusted data series, a theory that will be put to test next month when the March retail sales report is released.

The ABS will also release overseas arrivals and departures information for February on April 18.

While we will wait to see what effect, if any, Chinese New Year celebrations may have had on sales in February, Walters said recent strength in Australian employment growth may have been another factor.

“The improvement in consumers’ mood may reflect the fact that Australia generated more than 400,000 additional jobs over the past year, most of them full time,” he says.

However, while a pleasing result, Walters says it’s still far too early to declare the retail sector is out of the woods just yet.

“Wages growth is marooned close to all-time lows, interest rates have started to rise, share markets have been volatile, after an unusually calm 2017, and consumer confidence remains brittle,” he cautions.

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