Retail Sales — December | By the numbers
- Retail turnover fell by 0.5% in December to $27.765bn which was larger than the 0.2% contraction expected. However, turnover growth in November was revised up from 0.9% to 1.0%. Turnover growth in annual terms slowed from 3.3% (revised from 3.2%) to 2.7%.
- Retail volumes (nominal spending adjusted for price changes) increased by 0.5% in the December quarter; an upside surprise on the 0.3% rise expected and a sharp improvement on the 0.1% contraction from Q3. In annual terms, volume growth remains broadly flat, though it improved from -0.3% to +0.4%.
Retail Sales — December | The details
December saw retail turnover contract by 0.5% after posting its strongest monthly gain in 2 years with a 1.0% rise in November. The most likely interpretation is that consumers front-loaded spending in the lead up to Christmas to take advantage of widespread discounting around the Black Friday period. Consistent with that assessment, discretionary spending (sales excluding food) fell by 0.7% in December after surging by 1.2% in November, and within this, there were sharp pull backs from clothing and footwear (-1.5% in December from +3.2% in November), department stores (-2.8% from +3.7%) and household goods (-0.3% from 1.3%). Overall, retail turnover was up by a moderate 0.9% in the December quarter, though the detail was positive with every category experiencing growth; food +0.8%, household goods +1.2%, clothing and footwear +1.5%, department store +1.3%, 'other' retail +0.2%, and cafes and restaurants +1.2%. The annual pace of turnover growth surged in November from 2.2% to 3.3%, though around half of this increase was retraced in December easing to 2.7% to be broadly in line with the 2.6% pace recorded for the year ending Q3.
December saw retail turnover contract by 0.5% after posting its strongest monthly gain in 2 years with a 1.0% rise in November. The most likely interpretation is that consumers front-loaded spending in the lead up to Christmas to take advantage of widespread discounting around the Black Friday period. Consistent with that assessment, discretionary spending (sales excluding food) fell by 0.7% in December after surging by 1.2% in November, and within this, there were sharp pull backs from clothing and footwear (-1.5% in December from +3.2% in November), department stores (-2.8% from +3.7%) and household goods (-0.3% from 1.3%). Overall, retail turnover was up by a moderate 0.9% in the December quarter, though the detail was positive with every category experiencing growth; food +0.8%, household goods +1.2%, clothing and footwear +1.5%, department store +1.3%, 'other' retail +0.2%, and cafes and restaurants +1.2%. The annual pace of turnover growth surged in November from 2.2% to 3.3%, though around half of this increase was retraced in December easing to 2.7% to be broadly in line with the 2.6% pace recorded for the year ending Q3.
In Q4, retail prices lifted by 0.4%, the softest quarterly rise since Q3 2018, with annual growth slowing from 2.7% to 2.3%. This was driven mostly by a 1.1% rise in food prices, likely boosted by drought-related impacts. Aside from more modest rises from 'other' retail (0.8%) and cafes and restaurants (0.6%), prices weakened across the discretionary categories reflecting the impact of discounting for Black Friday sales.
Adjusting nominal sales for these price changes, the breakdown of volume growth across the categories is presented in the chart, below. The impact of price discounting saw demand rise for household goods (+1.4%q/q), clothing and footwear (+1.5%q/q) and department stores (+2.1%q/q). As a result, discretionary volumes lifted by 1.0% in Q4 — twice the pace of growth for total retail (+0.5%).
Bringing it all together, from this next chart, it can be seen that retail demand was boosted in Q4 by the impact of cheaper prices due to discounting and may have also been assisted by earlier RBA rate cuts and tax refunds to low-and middle-income earners. This saw annual growth improve from -0.3% — its weakest pace since 1991 — to +0.4%.
Turning to the states, nominal turnover growth in the month was positive in only Tasmania (+1.1%), with flat outcomes in Victoria and Western Australia, while contractions were recorded in New South Wales (-1.2%), Queensland (-0.5%) and South Australia (-1.3%). The ABS reported that bushfires impacted spending in New South Wales in the month, most notably for food retailing and cafes and restaurants. For Q4, spending nationally rose by 0.9%, meaning that New South Wales (+0.4%), Victoria (+0.7%) and South Australia (+0.3%) lagged. Outperformance came from Queensland (+1.8%), Western Australia (+1.1%) and Tasmania (+3.3%). Annual growth in the majority of states is stronger than the national pace underscoring the weakness in New South Wales (+0.8%). State volume details are provided in the table in the 'By the numbers' section above.
Retail Sales — December | Insights
There were mixed details from today's report, with December seeing a sharper-than-expected pull back in nominal sales (-0.5%m/m vs -0.2% expected) after November's Black Friday-induced surge (1.0%), though the outcome from volume growth in the quarter was more constructive than anticipated (+0.5%q/q vs +0.3% expected). Weakness in discretionary spending has been weighing on household consumption growth over recent years, but in Q4 it was the discretionary categories that drove retail volume growth. Whether or not that is sustainable is debatable given the impact of Black Friday sales in the quarter and weakness in consumer sentiment. The RBA anticipates that improved household balance sheets, in part due to last year's rate cuts resulting in higher asset prices, will support consumption growth rising through the year.
