Retail Sales — December | By the numbers
- Retail spending fell by $104.3, or by -0.4%, in December to $A27.006bn, with the median forecast set at a flat (0.0%) outcome. Turnover growth in November was revised up to 0.5% from 0.4%.
- Annual turnover growth remained at 2.8% in December on a seasonally-adjusted basis, however; in trend terms, sales growth slowed from 3.4% to 3.2% in year-on-terms.
- Retail volumes — which adjust nominal sales for price changes and are a key input to household consumption within GDP calculations — increased by 0.1% in Q4, well below the market forecast for a 0.5% rise.
- On an annual basis, volume growth slowed from 2.3% to 1.6% in Q4
Retail Sales — December | The details
Analysis of spending across the categories shows that it was weakness in the discretionary areas that drove the overall decline in December. Recall that it was these areas such as; clothing and footwear, household goods and department stores that drove the 0.5% increase in retail spending in November. Note also that online spending as a percentage of total turnover contracted by a sharp 1ppt to 5.6% in December. Going back to 2017, there was a 0.7ppt decline in this figure between November and December. This adds support to the view of a 'bringing forward' in spending ahead of Christmas to capitalise on sales promotions around Black Friday.
The detail for December was; food +0.5%, household goods -2.8%, clothing and footwear -2.4%, department stores -1.1%, other -0.1% and cafes and restaurants +1.1%. Removing the food category to isolate discretionary spending, turnover ex-food fell by 1% in the month following a 0.6% rise in November.
Over Q4, retail turnover in nominal terms increased by 0.7%, with all categories rising except for cafes and restaurants (-0.1%). Turnover ex-food in Q4 also lifted by 0.7%, driven by clothing and footwear, household goods and department stores.
A different picture emerges when looking at the past 12 months, with total retail spending growing at a 2.8% pace compared to discretionary spending at 1.9%. To be clear, growth in retail spending at 2.8% is well below the rolling-decade average of around 3.7% in seasonally adjusted terms. Over the past year, the food and 'other retail', which includes pharmaceuticals and cosmetics, categories have driven overall retail spending.
Turning to the states, December was a weak month across the board with; New South Wales -0.6%, Victoria -0.5%, Queensland -0.1%, South Australia -0.3% and Tasmania -0.2%. Western Australia was little changed at +0.1%. The key point to highlight is in New South Wales where spending declined by 0.5% in Q4 and only lifted by 1.7% over the past year. This may point to some response to declining property prices given that the state has a very low unemployment rate (4.3%) and solid population growth (1.5%).
From a volume perspective, the 0.1% rise in Q4 was a disappointing result, while annual growth slowed back to a similar pace from the period between late 2016 and early 2017. Households continue to be impacted by slow wages growth, though strengthening labour market conditions have been supportive. Contributing to a softening dynamic for consumers has been the well-documented declines in property prices, which could be weighing on spending decisions, though that is a contentious and difficult link to confirm as yet.
In Q4 retail prices lifted by 0.6% — its fastest increase since the September quarter in 2016 — while the annual pace remains subdued at 1.4%. Intense competition and the increased presence of global online retailers have contributed to pricing softness in the sector in recent years, however; prices appear to be gently increasing.
Retail Sales — December | Insights
Though there does appear to be some seasonality at play, this was a much weaker-than-expected result in terms of both nominal spending and volumes. Broadly, this fits with a notable slowing in the domestic data flow recently. In particular, today's data will add to concerns around the household sector, which is the largest component of the domestic economy, amid slow wages growth and a potential negative wealth impact from declining property prices. These data contribute around 30% to household consumption in the National Accounts, with spending on services the largest component.
