Australian retail sales might be growing far stronger than we think

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  • Australian retail sales have been weak in recent months, according to official data from the ABS, falling 0.5% in December before a paltry 0.1% increase in January.
  • That weakness has raised renewed concern about the current strength in household spending, the largest part of the Australian economy.
  • Alternate spending indicators that track actual spending patterns by customers suggest retail spending is not as weak as the ABS figures currently suggest.

After a flurry of spending in November driven primarily by the release of the new iPhone model and Black Friday/Cyber Monday sales, Australian retail sales have been very weak in recent months.

According to official data released by the Australian Bureau of Statistics (ABS), sales fell 0.5% in December in seasonally adjusted terms. That poor reading was followed up by a paltry 0.1% gain in January, well below the 0.4% increase expected by economists.

As a measure of spending during the Christmas and Boxing Day sales, it was more than a little worrying, raising concern that the combination of high household debt and weak wage growth was counteracting strong growth in employment, creating downside risks for the Australian economic growth given the importance of household sector.

However, perhaps those concerns were misplaced.

According to the National Australia Bank’s (NAB) latest Cashless Retail Sales report, spending levels look like they rebounded strongly during February.

It’s Cashless Retail Sales Index, a measure of retail spending using debit and credit cards, BPAY and Paypal by the NAB’s customer base, jumped by 0.9% in February, leaving the increase on a year earlier at 9.4%, the fastest acceleration since mid-2016.

“Spending at cafes, restaurants and takeaways remained the fastest growing category at 15.8%, while spending on household goods jumped to be the second fastest growing sector at 10.7%,” said Alan Oster, Chief Economist at the NAB.

“[Spending] at ‘other’ retailing (10.4%), department stores (10.1%) and on food (6.7%) was solid while clothing and footwear sales…[accelerated to] 4.8%.”

The NAB Index mirrors similar results from the Commonwealth Bank’s (CBA) Business Sales Indicator (BSI) which found that, excluding clothing stores, retail spending jumped by 1.9% in February, the fastest growth since July 2009.

While the NAB and CBA measures capture electronic payments, something that generally leads to faster sales growth than official retail sales figures given the continued switch away from cash payments to cards, both suggest that retail spending is pretty strong at present.

And, based off the results in the NAB report, Oster says the ABS figures may soon point to a similar outcome when its February retail sales report is released in early April.

Source: NAB

“Our mapping of the ‘official’ ABS measure also implies an increase in monthly growth in February of 0.7%,” he says.

While that would be a strong outcome, and help dispel underlying concerns about the strength of household spending, Oster cautions that while the NAB index has had a reasonable relationship to the ABS figures in prior periods, the relationship between the two has weakened in recent months with the ABS figures undershooting by some margin.

“We note that the ABS measure showed much slower growth than the mapped NAB measure in January, even adjusting for sample differences, suggesting some uncertainty around our estimate this month, or the possibility of revisions to the official measure,” he says.

So while the NAB index suggests retail sales rebounded sharply in February, that view comes with several caveats attached.

However, as many economists have already pointed out, the later than usual iPhone model release last year and increased prominence of Black Friday sales in Australian may have influenced the ABS’ seasonally adjusted series, possibly leading to recent weakness after an unusually large spike in spending in November.

That question is unlikely to be answered by the next ABS report, but as that series continues to suggest that spending is subdued, two other indicators which capture actual spending patterns are saying exactly the opposite.

The ABS retail sales report for February will be released on Wednesday, April 4.