This alternate spending indicator says Australian retail sales tanked in December

Bad Santa. Columbia Pictures Corporation, Dimension Films, Triptych Pictures. Source: IMDB

If recent indicators are anything to go by, it looks like Australian household finances are improving.

Consumer confidence — whether measured by ANZ or Westpac — sits at the highest level in over four years while retail sales have also risen in each of the past two months, including a 1.2% surge in November, the largest increase since January 2013.

As the theory goes, improved confidence about the economy and finances is now starting to help boost household spending, a good sign for the broader economy given it’s the largest component in GDP at a shade under 60% of GDP.

However, if the Commonwealth Bank’s latest Business Sales Indicator (BSI) is any guide, it looks like the recovery in retail sales may not have extended into the final month of 2017.

According to BSI, sales at retail and clothing stores fell 0.4% in December in trend terms, the weakest result in over six years.

“Traditional retail continues to struggle, with more and more goods and services competing for the affection of Aussie buyers,” said Craig James, Chief Economist at Commsec.

Excluding clothing sales, total retail spending fell by 0.5% in trend terms.

After such a strong increase in November, partially reflecting the later launch of the iPhone X and growing influence of Black Friday and Cyber Monday sales for Australian retailers, the weakness in retail spending in the BSI suggests Australia’s official retail sales report for December — released in early February — could make for some sober reading.

However, despite the weakness in retail, the BIS said that total spending across the economy continued to improve last month, lifting 0.4% in trend terms.

Source: Commsec

James said the largest increase came from spending on vehicles and autos which rose by 1.7% in trend terms.

“Car affordability has never been better, causing more people to update their rides,” says James.

The large increase also coincided with official figures from the Australian Bureau of Statistics (ABS) that revealed new car sales rose to the highest level on record during December.

Along with spending in vehicles, and perhaps reflecting higher petrol prices, spending on transportation recorded the second-largest increase of all categories monitored, lifting 1.4%.

Hinting that Australians continue to favour paying for experiences rather than retail goods, spending on amusement and entertainment also lifted 1.2% in trend terms.

Further explaining the strength in the headline BSI, spending on business services also rose strongly over the month, increasing by 1.1% in trend terms.

“The lift in spending by Business Services equalled the spending gain in November and was the strongest increase in a year, reflecting positive survey results on the sector,” said James.

Source: Commsec

In total, spending in 16 of 19 industries increased in December in nominal terms.

Mirroring that result, all states and territories aside from New South Wales recorded higher spending levels than November.

Strongest growth occurred in Northern Territory at 1.5% in trend terms, followed by South Australia, Queensland and Tasmania at 1.0%. Sales in Victoria and Western Australia rose by 0.9% and by 0.7% in the ACT.

In comparison, sales in New South Wales fell by 0.3% in trend terms, perhaps reflecting recent declines in Sydney property prices, according to data from CoreLogic.

With spending in Australia’s most populous state falling over the month, it contributed to annual growth in the BSI slowing to 6.1% from 6.4% in November.

Although a small deceleration, James notes this is still well above the 4.1% average level seen over the past decade.

The BSI uses the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities to measure spending levels across the broader Australian economy, including on services rather than just retail goods.

The Commonwealth Bank says it is comparable to nominal Household Final Consumption Expenditure in Australia’s quarterly GDD reports.

Although it only captures sales processed by the Commonwealth Bank, as Australia’s largest retail bank, the results are likely to reflect what is being seen by other Australia financial institutions.

Continued growth in electronic payments away from cash likely explains the faster annual increase in the BSI compared to official measures on spending released by the ABS.