Australia’s November retail sales report surprised everyone today, surging by 1.2%, the largest monthly increase since early 2013.
To put the figure into perspective, it was three-times larger than what the markets were expecting, driven in part by strength in household goods and other retailing due to the release of the iPhone X and growing popularity of Black Friday sales in Australia.
However, even excluding the impact of those one-offs, sales still grew by around 0.7%, an acceleration on the 0.5% increase reported a month earlier.
After a horrid September quarter where retail sales went backwards in nominal terms, the back-to-back gains suggests that Australia’s retail spending strike may now be over.
Now that they’ve had time to peruse the report, it’s time to see what economists have made of it all.
Is this the start of a consumer comeback, or is it just a false dawn before weakness in spending returns?
Let’s find out.
Simon Murray, Westpac
The result reflects a strong consumer response to emerging sales events, namely the Black Friday sales, with a boost in spending across household goods — in particular electronics — as well as the ‘other retailing’ category. These relatively new events in Australia may be causing a behavioural change in the way consumers shop, postponing purchases in the run up to expected discount periods. That effect appears to not yet be fully captured in seasonal adjustments to the sales data. This dynamic is likely to be behind the increased volatility in the retail sales series of late with Q4 bouncing back from a soft Q3.
Nevertheless, underlying fundamentals for the consumer are still subdued with weak household income growth a constraint on spending. But with the unveiling of Amazon’s expanded catalogue a key factor in the next December release, there will likely continue to be somewhat higher volatility in upcoming retail sales data.
Looking further out, price competition is likely to further intensify, as new entrants emerge in the Australian market and consumers continue to familiarise themselves with online sales channels. Amazon is the most notable new arrival, and will be particularly significant for online sales growth. In addition, Decathlon’s December opening in Sydney and Kaufland’s eyeing of an Australian entrance are reflective of the wider changes in the local market.
Carlos Cacho, UBS
The monthly data was boosted by several large sales over the month (Click Frenzy, Black Friday, Cyber Monday), as well as the release of the iPhone X. Excluding the increase in electronics — to control for the iPhone — retail sales grew by a softer, but still strong, 0.6%.
Retail sales have improved significantly since the low in Sept-17, but still remain weak compared to history, despite booming people and jobs growth. It now appears likely, that the retail weakness in the September quarter overstated the true state of the retail landscape. Looking forward, Q4 volumes will be key to gauge the strength of the consumer rebound and whether stronger sales have once again been driven by falling prices and margins or by a solid consumer.
We continue to expect slowing house price growth, the fading household wealth affect and ongoing weak wages growth to weighing on consumption into 2018, likely keeping the RBA on hold till 2019.
John Peters, Commonwealth Bank
The jury is still out on whether we are on the cusp of a significant pick up in retail trade growth. We think such a sustained substantive pickup in retail activity is still some way off. Any positive impact on the retail sector from strong employment growth and a buoyant tourism sector looks likely to continue being eclipsed by historically soft wages growth and diffident consumers.
Moreover there is a limit to how much further households will be willing to cut savings and raid nest eggs to engage in more retail therapy. Additionally, despite the fact that monetary policy remains highly expansionary, household perceive their financial situation as under pressure. This is a solid headwind to consumer spending and the retail sector in general. As are surging electricity and gas prices.
Today’s retail data does nothing to alter our long held view that the RBA will remain benched until late 2018 (at the earliest) before it lifts the cash rate from its current record low of 1.5%. Generally retail and consumer spending ahead is likely to continue to be scuppered by very modest wages growth and relatively lethargic consumers. Add to this mix the fact low inflation and feeble wages growth show no sign of picking up anytime soon, the RBA has plenty of breathing space before deciding on its next policy move.
Jo Masters, ANZ Bank
The strong result came despite the jump in petrol prices for the month, which we thought would dampen sales relative to the consensus expectation. Underscoring the strength, sales were up in all states and in all categories except supermarket and grocery stores and department stores. Indeed, sales excluding electrical and electronics were up a still-healthy 0.7%, perhaps surprising given that consumers look to have splurged on the iPhone X.
The strength in November builds on the solid gain for October and suggests that retail sales will be solid for the December quarter as a whole. We don’t think this changes the story of a challenging retail environment, with soft demand for the most part and competitive forces weighing on prices.
Interestingly though, while surveyed business conditions in the retail sector are below long run averages, 65,000 retail jobs have been created in the past three quarters, concentrated in New South Wales and Victoria, with 62,000 of those full-time, leaving jobs growth running at 4.7% annually.
Ben Jarman, JP Morgan
Individual product releases of this type have had an influence on monthly releases in the past, but not reliably, hence the surprise today. Given that smartphones are a lumpy consumer durable purchase, in this case we can get a rough sense of underlying growth by taking growth in sales ex-electronics, which was 0.65%.
Taking 0.65% as the underlying read, this is still a beat on the month. If Christmas sales were dragged forward into November as suggested today, the data will be hit punitively by the seasonal factors in December. This sequence would also be consistent with retailer reporting, which suggested a decent start to Q4, but a weak spending Christmas period with sales down in year on year terms.
The ABS retail data are not the most high-quality, nor are they even intended to measure consumer outlays per se, but we believe the true path of goods consumption is somewhere between the very weak retail numbers reported around the middle of the year, and the firmer tone in the last couple of readings.
Kate Hickie, Cap[ital Economics
The much stronger than expected surge in retail sales values in November, alongside the decent rise in October, suggests that real consumption growth bounced back in the fourth quarter. It also tallies with other encouraging signs about the health of the household sector recently, and suggests that the risks to our forecast that real consumption growth will remain around 2.0% this year lie to the upside. But the influence of the slowing housing market, high household debt and weak wage growth will mean growth is not much stronger.
Amy Li, National Australia Bank
Given the increasing popularity of November sales and the change in seasonal patterns, some of the sales could have been brought forward to November and we might not see a continuation of such strength in December. Taking an average of the two months will be a better way to interpret the results.
Overall, retail sales growth has been trending down in the past few years. The subdued wages growth and high household debt levels are likely to continue weighing on consumer sentiment and retail spending growth.
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