Australian retail sales disappoint, which means despite a lower cost of living, consumption is weak

The lack of follow-through in consumer confidence from the big fall in petrol prices is a sign that the usual transmission mechanisms in the economy between lower cost of living and increased consumption are not working as they used to.

So it should be no surprise that the December retail sales, released by the Australian Bureau of Statistics this morning, undershot expectations with a rise of just 0.2% against market expectations of 0.4%.

It follows on from the anaemic rise of 0.1% in seasonally adjusted terms in November and 0.4% in October.

This has seen the rate of change on both a 3- and 12-month basis dip lower.

This suggests some weakness in the sector.

However, Westpac senior economist Justin Smirk told Sky Business soon after the release that he was encouraged, and “saw some strength” in the fact that the volume measure – the inflation-adjusted one – was up 1.5% on the quarter.

The full break up of the moves for each sector in retail was:

  1. Footwear and personal accessory retailing (+2.7 per cent)
  2. Food retailing (+0.3 per cent )
  3. Other retailing (0.0 per cent)
  4. Cafes, restaurants and takeaway food services (0.0 per cent)
  5. Household goods retailing (-0.4 per cent) and
  6. Department stores (-0.9 per cent).

It’s the performance of my favourite indicator of consumer behaviour – the spend on cafes and restaurants which was flat in December – which I find most instructive however in terms of consumer behaviour.

The up and down nature of growth in spending in this sector, relative to strength in the first 6 months of the Abbott government, continues to speak of consumer caution.

With petrol below $1 a litre in the capital cities and with the RBA having cut rates, the December retail sales are somewhat historic. Equally the RBA has clearly downgraded growth again given it eased policy this week.

So, looking ahead, what matters now is the reaction to these two significant measures in the months to come.

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