It’s only early days, but it looks like Australia’s retail spending strike may be over.
According to Australia’s Bureau of Statistics (ABS), retail sales jumped by 1.2% to $26.377 billion in November in seasonally adjusted terms, easily topping economist forecasts for an increase of 0.4%.
It was the largest monthly percentage gain since January 2013 and saw the annual pace of sales accelerate to 2.9% from 1.8%, the fastest increase in five months.
The ABS said the enormous increase was partially due to the release of the iPhone X and end-of-year promotions online.
“In seasonally adjusted terms, rises were led by the household goods (4.5%) and other retailing (2.2%) industries,” said Ben James, Director of the Quarterly Economy Wide Surveys at the ABS.
“Seasonally adjusted sales in both these industries are influenced by the release of the iPhone X and the increasing popularity of promotions in November, including Black Friday sales.”
The ABS said that online sales contributed 5.5% to total retail sales in original term, the largest monthly contribution in the history of the online series.
While this suggests the strength in total sales was driven by one-off factors, spending increased or was unchanged in all other categories aside from department store sales.
“There were also rises for clothing, footwear and personal accessory retailing (1.6%) and cafes, restaurants and takeaways (0.4%),” the ABS said.
“Department stores fell (-1.1%) whilst food was unchanged.”
Mirroring the increase in headline sales, spending levels rose in every state and territory.
“There were rises in Victoria (1.8%), New South Wales (1.0%), Western Australia (1.4%), Queensland (0.7%), South Australia (1.5%), Tasmania (1.8%), the Australian Capital Territory (1.2%) and the Northern Territory (0.2%),” the ABS said.
The question that will be asked now is whether the strength of the November report was a one-off or the start of a longer-lasting trend, especially as it came on the back of a 0.5% increase in October.
While that won’t be known until December’s retail sales report is released early next month, recent strength in consumer confidence readings does provide room for optimism.
Both the Westpac-Mi and ANZ Roy Morgan recently hit four-year highs, driven by improved sentiment towards the economy and family finances.
Importantly, measures on current finances improved in both surveys, a promising sign given it has a reasonable relationship to household spending levels.
Still, despite those promising signs, trend retail sales — a measure that strips out volatility in the monthly seasonally adjusted figures — grew by only 0.1% in November, matching the increase reported in October.
That is perhaps a better reflection of the underlying strength in sales, and suggests that there’s still plenty of reason for caution despite the strength in the seasonally adjusted figures.
“Many households are continuing to struggle against weak income growth, rising debt levels and price increases for essentials such as power,” says Sarah Hunter, BIS Oxford Economics’ Head of Economics Australia.
“With these drags on spending set to continue, 2018 is likely to be another relatively subdued year for growth in household expenditure.”
While she’s not expecting a stellar recovery in spending levels this year, Hunter says today’s report, along with the modest increase seen in October, should help to boost Australian GDP growth in the December quarter.
“The data supports our view that there is likely to be a bounce back in the national accounts consumer spending in the last three months of the year, after a surprisingly weak rise in the September quarter,” she says.
However, while he agrees with Hunter that there are still headwinds facing household spending, Stephen Walters, Australian Institute of Company Directors Chief Economist, says there’s perhaps too much focus on the impact of weak wage growth on the outlook for retail spending.
“Consumers still face headwinds, including weak wages growth, high energy prices, record high debt, a softening housing market, and fragile confidence. But, too much emphasis is placed on record low wages growth, and not enough on physical jobs,” he says.
“Arguably, it’s more important that the job market has been booming, with employment last year rising for its longest uninterrupted monthly stretch since the upswing from the last recession in the 1990s.”
In his opinion, Walters says “the misguided obsession with weak wages growth means we may be missing the wood for the trees on households”.
“Indeed, the focus on wages instead of booming jobs might explain why household spending has significantly surprised expectations to the upside in recent months,” he says.
“An important takeaway for directors is that, if the consumer indeed is back, interest rates will not stay at current record lows for too much longer.”
The Australian dollar has rallied upon the report, while Australian government bond futures — already under pressure following a lift in global bond yield overnight — have weakened, indicating a greater chance that today’s figures increase the likelihood that the Reserve Bank of Australia may begin to lift interest rates sooner than currently expected.
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