Missing December ingredient sours RBA rates call
December retail sales were an important missing ingredient in the RBA lunch stew, making an argument for its 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 what 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 last year. Looking at the year in total, retail sales growth was modest but reasonable in the first half, 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 on Tuesday made no mention of retail, the closest thing being: "Present indications are that moderate growth in private consumption spending is occurring."
That's supported by record car sales and overseas travel, but the consumer spending isn't doing any growing in the shops.
Other Bureau of Statistics figures released on Wednesday show a record 908,600 Australians left the country for a short trip in December, the first time the 900,000 mark has been broken. Over the past five years, the numbers of us holidaying abroad has soared more than 50 per cent. In-bound tourism continues to run at record highs, never mind our strong dollar, and a rapidly changing composition has tourism from non-Japan Asia exploding.
What makes the retail figures more intriguing is that while just about everyone is shouting about the seasonally adjusted number (down 0.2 per cent) and only the occasional oddball concentrates on the trend series, totally forgotten is the original numbers, the raw unadjusted dollars counted.
On that score, there's the $5 billion leap from November to December that you'd expect with the Christmas blow-out, but December 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 is a much better day for lunching.
Michael Pascoe is a BusinessDay contributing editor
Frequently Asked Questions about this Article…
The Reserve Bank of Australia (RBA) chose to sit pat on interest rates at its recent meeting. Commentators called the decision 'brave' because key December retail data — a potentially important signal for consumer strength — was missing from the information set the board had before deciding, making the call less of a sure thing than economists expected.
December retail figures were a missing ingredient for the RBA. Trend and seasonally adjusted measures showed subdued retail activity late in the year, suggesting household spending in shops wasn’t growing strongly. That weaker retail picture likely made the RBA more cautious about claiming policy easing was clearly working.
They give different views: the trend series smooths volatility and showed retail sales up 2.5% year‑on‑year but essentially flat over the last four months of the year; the seasonally adjusted series recorded a small monthly fall (down 0.2%); while raw unadjusted dollars showed the usual big November–December lift but only a 0.8% increase year‑on‑year (A$218 million). Together they suggest Christmas spending wasn’t especially strong compared with a year earlier.
The RBA noted 'moderate growth in private consumption' and that was supported by record car sales and a lot of overseas travel. In other words, consumers may be spending less in traditional retail outlets while boosting spending on cars and holidays abroad.
Holiday travel is affecting retail: a record 908,600 Australians took short overseas trips in December (the first time above 900,000), and outbound holidaying has risen more than 50% over five years. That means some household spending that might previously have occurred in Australian shops is now happening overseas, which can dampen domestic retail figures even when overall consumption remains moderate.
Investors should watch the RBA’s quarterly statement on monetary policy (flagged as particularly informative) and the January labour force statistics. Those releases could clarify whether softer policy is supporting growth and whether the RBA will change its stance.
The article suggests timing matters: because December retail data arrived after the RBA’s meeting, some argued the board would be better off meeting on the second Friday of the month rather than the first Tuesday so it can consider the latest retail and labour data before deciding.
For investors, the key takeaway is that consumer behaviour is shifting: in‑store retail growth has been weak, even as car sales and travel remain strong. These structural shifts — plus softer retail trend readings — could affect consumer-exposed sectors and inform how you position consumer discretionary or retail stocks, but investors should also watch upcoming RBA commentary and labour data for clearer signals.
Call 1300 880 160
Start a chat
Schedule a call
