After opening 2023 with a strong rebound, Australian retail sales were broadly flat in February (0.2%). Retail sales are little changed on net since September, with the momentum clearly weakening over recent months due to pressures on household budgets and the fading of the post-Covid recovery. Discretionary spending matched the headline result (0.2%) but has been around mid-2022 levels for the past 3 months.
Momentum in retail sales has been weak over recent months, the turning point appearing to come following a strong Black Friday sales period in November ahead of Christmas. The 3-month average pace for retail sales slid to -0.6% in February from 0.9% in November, with weakening momentum in discretionary sales (-1.2% from 1.0%) the driving factor.
Looking at the breakdown of the categories, spending on clothing and footwear and at department stores has rebounded to be at levels last seen in October, before the Black Friday surge. However, spending has failed to rebound in household goods, which remains well down around late-2021 levels, and 'other' retailing (including personal effects and recreational goods etc). Notably, spending at cafes and restaurants has remained resilient over recent months, though that partly reflects restaurants passing through cost increases to customers.
The momentum in retail sales has weakened over recent months, consistent with the slowdown in household consumption into year-end reported in the December quarter national accounts. With the full effects of the RBA's tightening cycle yet to impact households, a pause in rate hikes is nearing. Whether that pause is forthcoming in April could hinge on tomorrow's CPI report.
