Australian retail sales came in flat in July, according to official data by the ABS, ending a solid recovery in spending during the June quarter.
However, after stalling in July, spending may be about to get significantly worse.
According to the National Australia Bank’s (NAB) Cashless Retail Sales Index, a measure of retail spending by NAB’s customer base, there was a pronounced, broad-based slowdown recorded during August.
“The value of cashless retail spending increased at a yearly rate of 5.3% in August, down from 7.7% in July in seasonally adjusted terms,” said Alan Oster, chief economist at the NAB. “While yearly growth rates have consistently slowed from a peak of over 12% in late 2015, this month’s decline is particularly pronounced.”
Although the only captures cashless spending patterns among its customers, the NAB says it’s “reasonably assumed to be representative of aggregate non-cash retail sales in Australia”.
Essentially, it can be used to extrapolate spending patterns across the broader Australian economy.
Mirroring the slowdown in the headline index, Oster said that spending by category and location also weakened from the levels reported in July.
“The slowdown in retail sales evident in the index has been broad-based across categories, with growth slowing for both discretionary items and for essentials,” he said.
“Deceleration in retail spending has also been evident across all the states and territories that we track, although remains strongest for the non-mining south-eastern states of the ACT, new South Wales and Victoria, consistent with the general outperformance in those states more recently.”
Here’s the change in annual growth rates by category over the past three years.
And here’s the same charts, only for Australia’s most populous mainland states and territories.
While the annual growth rate remained firmly in positive territory, the index fell by 0.7% in August in seasonally adjusted terms, something Oster says points to the likelihood that total retail spending — using cash, cards and online payment portholes — fell heavily during the month.
“Based on movements in the NAB cashless spending index and our data mapping techniques, ABS retail trade is expected to decline by 0.5% in August which would be the weakest monthly growth rate since March 2013,” he said.
“This follows anaemic growth in both June and July, and it is now clear that the strength in retail trade evident in April and May was a temporary bounce.”
Not exactly great news, presuming the NAB is right, of course.
Oster says the weakness reflects a combination of factors that are keep spending levels subdued compared to historic standards.
“Weak retail trade conditions and cautious consumer behaviour are unsurprising against a background of low wages growth, high energy costs and elevated levels of household debt,” he says.
“Weakness in retail sales in nominal terms is also likely to reflect price deflation, or disinflation, for some retail goods.”
And while stronger labour market conditions could see spending levels lift in the months ahead, Oster suggests that households may choose to save, rather than spend, any additional income that they may receive.
“While we may see some improvement in coming months in response to the strength of employment growth, which has averaged 38,000 per month for the past five months, it is equally possible that households will choose to increase their savings levels in the current environment, as appears to have been the case in recent months,” he says.