- Australian retail sales were unchanged in March, a disappointing outcome after a solid increase in February.
- New data from the NAB points to the likelihood that sales fell in April.
- Australian wage growth is weak, crimping the ability of households to spend.
In the minutes of its May monetary policy meeting, the Reserve Bank of Australia (RBA) board noted that “household consumption had grown solidly over 2017, and recent data on retail and motor vehicle sales, as well as information from the Bank’s liaison, suggested that this momentum had continued in early 2018”.
It added that “consumption had been relatively resilient to the slower growth in household income over recent years”.
Well, that view may need a tweak, at least when it comes to retail sales, accounting for around a third of household consumption.
Not only were retail sales flat in March, according to data from the Australian Bureau of Statistics (ABS), there’s now a good chance that sales may have fallen in April.
According to the National Australia Bank’s (NAB) cashless retail sales index, the value of electronic transactions processed through the bank’s platform fell heavily last month, declining by 0.6%.
It was the first decline reported since December last year.
“Generally most sectors were weak in April, with only cafes, restaurants and takeaway and department stores recording a month on month gain,” said Alan Oster, chief economist at the NAB. “Food recorded the weakest result, followed by clothing and footwear.”
Given the reasonable relationship that exists between the NAB index and figures reported by the ABS, Oster says the decline does not bode well for Australia’s official retail sales report released in two weeks time.
“Our mapping of the official ABS measure points to a fall of 0.2%,” he says.
“This is the first drop since December 2017, which followed a very strong November. More concerningly, the April result comes after a flat ABS read in March.”
So after coming in flat in March, retail sales may have deteriorated further last month.
The relationship between the NAB index and the ABS measure of retail sales is shown in the chart below.
It’s not perfect by any stretch, but it’s still a fairly reliable guide on what to expect, especially given alternate reports that suggest conditions in Australia’s retail sector are weak.
“While the monthly data are volatile, our latest Australian Business Survey also showed retail business conditions turning negative in April for the first time this year, further suggesting that the retail sector is losing momentum again,” Oster said.
The NAB index is derived from around 2 million personal transactions per day using the bank’s NAB platforms, including spending by consumers using debit and credit cards, BPAY and Paypal.
The bank says it is “reasonably assumed to be representative of aggregate non-cash retail sales in Australia given its large sample size”.
Reflective of broader trends in cashless spending across Australia, in other words.
While we will have to wait until early June to receive Australia’s official retail sales report, if sales have declined, it would be a concerning development, particularly after sales were flat in March.
Perhaps helping to explain why sales remain weak compared to prior periods, Australian wage growth — the largest source of household income for many families — remains incredibly weak, lifting by just 2.07% in the year to March, barely ahead of inflation.
For those in the private sector, the largest employer in Australia, real wage growth was flat over the year, crimping the ability for households to lift spending levels.
“With households under pressure from low wage growth and a slowing housing market, and tax cuts unlikely to boost incomes until the second half of 2019, we expect consumption growth will slow to around 2.0% by the end of this year, says Kate Hickie, Australia and New Zealand economist at Capital Economics, following the release of the latest Westpac-MI Australian consumer sentiment report today.
The headline confidence index fell marginally to 101.8, largely reflecting a sharp deterioration in sentiment towards current family finances.