It looks Australia's January retail sales report could be pretty good

Picture: Tom Pennington/Getty Images.
  • Australian retail sales fell heavily in December after a huge increase in November
  • Alternative spending indicators from the NAB and CBA both point to a rebound in sales in January
  • Sales at department stores fell 3.1% over the year based on electronic spending from the NAB’s customer base

The Commonwealth Bank released its Australian Business Sales Indicator earlier this week, revealing that spending at retail stores grew by 1.7% in January, the fastest pace in over eight years.

After a pretty terrible Australian retail sales report for December, it offered a promising signal that spending may have accelerated in early 2018.

It’s not the only indicator pointing to such an outcome.

The National Australia Bank’s (NAB) Cashless Retail Sales Index, a measure of retail spending using debit and credit cards, BPAY and Paypal by the NAB’s customer base, also rebounded by 0.6% in January, hinting that a similar result may be seen when the ABS releases Australia’s official retail sales report in early March.

“The NAB Cashless Index and our mapping of the official ABS measure imply a monthly increase in retail sales of 0.4% in January,” said Alan Oster, Chief Economist at the NAB.

“This is a welcome change from the negative growth in December.”

Source: NAB

While the Cashless Indicator has been a fairly reliable indicators for Australia’s official retail sales report in the past, Oster cautioned not to place too much weight on the January result.

“We are reluctant to read too much into the data given the impact of changing seasonal patterns, where the introduction of Black Friday sales to Australia has shifted discount sales and holiday spending forward,” he says.

“The release of the newest iPhone in November was also a contributory factor to this shift.”

While the index offers guarded optimism as to what may happen with spending in the near-term, the NAB said that from a longer-term perspective, momentum in spending appears to be slowing.

“Looking through these monthly movements, annual growth in retail spending however has slowed in recent months, suggesting some loss of momentum,” Oster says, noting that it fell to 7.5% in January, down from over 12% in mid-2015.

“Whilst overall year-ended growth remains respectable, this slight reduction in growth is evident across the board in terms of all categories excluding ‘other retailing’, and all states indicating a systematic shift in consumer spending behaviour.”

By category, spending at cafes, restaurants and takeaway food outlets grew by 19.3%, over the year, the fastest of all groups monitored. Spending on ‘other retailing’ and household goods, at 7.8% and 7.7% respectively also registered solid results.

Elsewhere, the NAB said spending on food and apparel slowed to 4.7% and 2.5% respectively, while spending at department stores fell by 3.1% over the year.

Source: NAB

While some of those annual growth rates are spectacular, and well above the 2.9% annual increase reported by the ABS in December, this reflects that the NAB index only tracks electronic spending, a faster growing category compared to cash.

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