Lessons of a banker's lunch leave lot to digest
December retail sales were an important missing ingredient in the RBA lunch stew, making an argument for RBA board meetings to be held on the second Friday rather than the first Tuesday of the month.
If the RBA was relying on its industry liaison for a reading on the state of Australian shopping, the advice must have been the same as retailers have told media: that Christmas was a little better than last year but nothing flash. And looking at the December-on-December trend from the Bureau of Statistics trend series, that was the case: retail sales were up just 2.5 per cent on December 2011.
But the trend series shows the value of retail sales effectively flatlined over the last four months of 2012. Looking at the year in total, retail sales growth was modest but reasonable in the first half of the year, wobbled in July, fell in August and stayed on the mat thereafter. December was actually negative by 0.1 per cent.
The RBA governor's brief statement after Tuesday's meeting made no mention of retail, the closest thing being that: "Present indications are that moderate growth in private consumption spending is occurring."
That's supported by record car sales and overseas travel, but spending in the shops isn't growing.
More intriguing about the retail figures is that while everyone's shouting about the seasonally adjusted number (down 0.2 per cent) and only the occasional oddball concentrates on the trend series, forgotten are the original numbers, the raw unadjusted dollars counted.
There's the $5 billion leap from November to December you'd expect with the Christmas blowout, but December 2012 was up just 0.8 per cent - $218 million - on December 2011.
The structural changes in retail, including how much stuff we're bringing back with us from overseas rather than buying at home, cloud the picture, but there's enough in the statistics to make the RBA concerned about whether slowly softer monetary policy is working. Friday's quarterly statement on monetary policy should be particularly interesting reading. With January labour force statistics to come on Thursday, the RBA might well think Friday a better day for lunching.
Frequently Asked Questions about this Article…
The RBA’s decision to hold rates looked brave because fresh December retail sales data showed a softer consumer picture than many had expected. Trend measures of retail spending had effectively flatlined over the last four months of 2012, and seasonally adjusted retail sales fell, which raises questions about whether the recent gradual easing of monetary policy is actually stimulating shop‑based consumption.
December 2012 gave mixed signals: the seasonally adjusted series fell (down about 0.2%), the trend series showed retail sales were only modestly higher year‑on‑year (around 2.5% on December 2011) and the trend monthly read was weak (December was reported as about -0.1% in the trend series). In raw dollars, December 2012 was up only 0.8% (roughly $218 million) on December 2011.
Seasonally adjusted numbers remove predictable seasonal patterns (for December the seasonally adjusted figure fell ~0.2%), trend series smooths shorter‑term volatility to show the underlying direction (it showed flatlining in late 2012 and small year‑on‑year growth), and raw unadjusted dollars are the actual sales values counted (December 2012 was up about 0.8% or $218m versus December 2011). Each measure gives a different, useful perspective on retail activity.
When consumers bring purchases home from overseas instead of buying them locally, it lowers measured domestic retail sales even if overall household spending hasn’t fallen. The article notes these structural shifts — and similar changes in shopping habits — can cloud the picture that headline retail numbers present to policymakers and investors.
Softer shop spending can signal weaker domestic demand, which may influence the RBA’s view on monetary stimulus and affect interest‑rate expectations. For everyday investors, this means watching upcoming RBA commentary and economic releases closely because consumer weakness can weigh on retail‑related shares and broader economic confidence.
The piece argues that key data releases — notably December retail sales and January labour force statistics — arrive too close to the RBA’s first‑Tuesday schedule. Moving meetings to the second Friday would let the Board consider that important data before making policy calls, rather than meeting before the latest consumer and jobs numbers are available.
Investors should look for the RBA’s assessment of private consumption and whether recent rate cuts are translating into stronger retail spending. The article flags that the quarterly statement is likely to address concerns about whether the slowly softer monetary policy is having the intended effect on consumer behaviour.
The article points out a contrast: some indicators of household activity were strong — record car sales and increased overseas travel — while spending in bricks‑and‑mortar shops was not growing. That divergence complicates the picture of overall consumer health for both investors and policymakers.
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