Here's what economists are saying about Australia's retail sales report

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  • Australian retail sales increased at the fastest pace in seven months in November, boosted by Black Friday and Cyber Monday sales.
  • Opinion is divided as to whether this will lead to a decline in sales during December given Christmas spending was likely brought forward by these events.
  • Most agree that December’s retail sales report, released on February 5, will be crucial in determining strength in aggregate Christmas spending.

Australian retail sales continued to improve in November, increasing at the fastest pace in seven months on the back of Black Friday and Cyber Monday sales held late in the month.

According to the ABS, total turnover increased by 0.4% after seasonal adjustments. Non-food sales were even stronger, increasing by 0.6%, reflecting the impact of deep discounting on discretionary spending.

Online sales also accounted for 6.6% of total turnover, the highest proportion on record.

On the surface, it was a solid result. They key question, however, will be whether the strength in November will be followed by weakness in December.

In 2017, it was clear that Black Friday and Cyber Monday sales brought forward Christmas spending into November, resulting in a large decline in turnover during December.

Given these events are relatively new to Australia, and have lead to volatility in the ABS seasonally adjusted data previously, there’s a reasonable chance that sales could actually be quite weak when the December retail sales report is released on February 5.

Until we have that data, there are more questions than answers as to just how strong or soft spending was in the lead up to Christmas, and during the Boxing Day sales.

So, will the boost from sales in November be reversed next month, or will the recent momentum be sustained?

Here’s a collection of economist views on both today’s report and what potentially lies ahead.

Kaixin Owyong, NAB

While the data was not as soft as market participants feared, it’s probably still not enough to offset concerns of a soft Q4 outcome for consumer spending given reports of a weak December period and given it’s likely a fair chunk of November’s upside surprise reflected consumers bringing forward their Christmas shopping.

Industry level data suggest clear signs of a Black Friday/Click Frenzy effect. Household goods retailing and clothing and footwear recorded the strongest growth — both industries that saw heavy discounting. The household goods sector has been under pressure for some time, in part reflecting lower housing turnover, and these data suggest that November sales provided welcome relief.

The data provides a reminder that changes in consumer behaviour are running ahead of the seasonal factors, an effect likely to work in the reverse direction in the December data.

For the RBA, December retail sales data will be crucial for its outlook for household spending, and therefore GDP. Recent Q3 data published in December will force the Bank to revise down its growth outlook, but further signs of soft spending will make it difficult for the Bank to credibly maintain its view that consumer spending will pick up to around 3% per annum.

Ben Jarman, JPMorgan

We have been expecting household consumption to do a little better in Q4 than in Q3 as the September quarter was particularly weak relative to income growth. Today’s reading is consistent with that. In terms of the roll-out of the monthly numbers, industry reporting had suggested that November’s sales would be OK, but at some cost to December, given that the drift toward more online spending and earlier summer sales is smoothing Christmas spending activity nowadays.

We continue to expect real household consumption to slow toward 2% growth, driven by credit/financial constraints that will prevent further declines in the household saving rate, pulling consumption growth down to income growth. In our forecast this drags GDP growth back down below 3%, and the softer domestic demand impulse will similarly see the labour market lose momentum after last year’s solid outcomes.

Robert Thompson, RBC Capital Markets

Following a pretty decent October report, the risk to our Q4 2018 consumption input into GDP is now skewed a little to the upside. We currently forecast a modest 0.4% quarterly lift in real household consumption.

As we have already flagged, though, the major caveat to November’s strength is that it could represent some pulling forward of Christmas-time consumption out of December. Stay tuned for a possible weaker report next month, with quarterly volumes also included.

Shane Oliver, AMP Capital

We see retail sales growth being weak over the year ahead — averaging around 2.5-3% annual growth — as jobs growth slows, wages growth remains weak and falling house prices weigh on consumer spending via a negative wealth effect making households want to increase their saving rate in contrast to the falling trend in the saving rate seen in recent years.

Weak pricing power will also weight on nominal retail sales growth. Reports of weaker than expected avocado sales — less demand for smashed avocado and feta on rye toast — may be telling us something.

While reasonable growth in November and October retail sales are consistent with a better contribution to growth from consumer spending to December quarter GDP growth, it’s hard to see it being sustained. Our assessment remains that the next move in official interest rates will be a rate cut thanks to sub-par growth, the negative impact of falling house prices, weak wages growth and sub-target inflation.

Michael Blythe, Commonwealth Bank

There is some evidence of a shift in the timing of pre-Christmas spending that complicates analysis. In particular, the Black Friday to Cyber Monday period is now a significant event. CBA credit card spending data makes the point.

The same credit card data suggests the overall Christmas trading period was relatively soft. The run up in sales activity in the 2018 pre-Christmas trading period lagged behind 2017, and behind the average experience over the past decade or so. The cumulative dollar value of the Christmas spend from start November to early January is the best approximation of the underlying trend. On that metric, spending was down by 3.7% on the same period a year earlier.

The spending headwinds from weak wages growth, high debt levels, job security fears, falling house prices and general economic fears will carry over from 2018 into 2019, but the backdrop should improve a little. Lower petrol prices are lifting spending power and tax cuts are coming. The leading indicators point to ongoing jobs growth and the modest pick up in wages growth appears set to continue.

Marcel Thieliant, Capital Economics

The rise in retail sales in November should allay some of the fears that the slowdown in the housing market is weighing on consumption.

Spending should have picked up a little in the fourth quarter. The 3.3% q/q drop in car sales in the fourth quarter was less pronounced than in the third quarter. And the rebound in the Services PMI suggests that spending on services, which accounts for 70% of total consumption, may rise more strongly than the subdued 0.4% gain in the third quarter.

For now, we’ve pencilled in a 0.5% rise in consumption in the fourth quarter. And the recent plunge in petrol prices will give households some extra income to spend at the start of 2019. But we still think that falling housing wealth will eventually prompt households to rein in spending and we expect consumption growth to slow from 2.6% in 2018 to 2.0% this year.

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