Australian retail sales fell unexpectedly in December, according to figures released by the ABS today, leaving annual growth at a paltry 3.0%.
It was a disappointing outcome, particularly following a minuscule 0.1% increase in the previous month.
However, the drop may not be all that it seems, with headline figure dragged down by a collapse in spending in one category and one only: hardware, building and garden supplies sales.
Spending on that front slumped by 6.6% in seasonally adjusted terms, the largest one month percentage decline since July 2000, two months before the start of the Sydney Olympics.
The chart below tells the story.
So what happened? Did Australian construction activity suddenly grind to a halt at the end of 2016, mirroring the slowdown before the Sydney Olympics as venues were completed, or were their other factors behind the unusually large decline?
Tapas Strickland, an economist at the National Australia Bank, believes the decline was almost certainly driven by the closure of the Masters hardware chain in early December last year.
“The sharp fall in hardware is likely due to the liquidation sales and then closure of the Masters hardware chain,” he wrote following the release of the December sales report.
“NAB estimates that the Masters liquidation may have dragged 0.4% points off monthly retail sales growth.”
Given nominal retail sales fell by just 0.1%, Strickland says that excluding the impact of the Masters closure, retail sales actually rose by 0.3% for the month: “around the trend pace it has been averaging since mid-2016”.
So while under the surface the result was weak, but one look under the hood suggests that it was driven by one-off factors, rather than a collapse in construction activity.
The fact that total retail sales fell by 0.3% and 0.4% in New South Wales and Victoria — where Masters had its biggest footprint — only helps to bolster that view.
As such, Strickland expects retail sales to rebound “to its trend rate of growth” when the ABS releases its January report in early March.