Modest spending despite rate cuts
THE disappointing news for retailers looks set to continue, with credit card data for the holiday period showing spending rose only modestly from the year before.
The analysis of more than 3 million Commonwealth Bank cardholders' transactions came as Westpac said its consumer sentiment index rose just 0.6 per cent in January from the month before.
Consumer spending remained cautious in the 11 weeks to January 4 despite the Reserve Bank's interest rate cuts, with Christmas spending up by only 4.2 per cent on a year earlier, the data showed.
"Given this is nominal spending rather than real spending [inflation-adjusted], it highlights the tough environment faced by the retail sector," said CBA analysts Andrew McLennan, Sam Teeger and Savanth Sebastian.
The data revealed more spending on necessities but barely an increase on discretionary items, with nominal sales rising by only 1.5 per cent. Spending on food and liquor was 10.8 per cent higher than the year before.
"If inflation was taken into account it would suggest that real discretionary spending actually went backwards during Christmas 2012 compared with a year ago," the analysts said.
"And, given the buzz and interest around Christmas retail activity, the lack of discretionary spending really speaks volumes about how tough the retail sector is doing it ... despite a healthy period of interest rate cuts."
Boxing Day sales transactions, up by 20 per cent from 2011, showed consumers were attracted to heavy discounts, the analysts said. The strength of the Australian dollar played a part, with some buying from overseas websites. The data, from debit and credit card transactions, included online spending. With the bank expecting steady growth of internet shopping to rise to 5.4 per cent from 4.9 per cent in December 2011, the analysts said, the data could be overstating the performance of bricks-and-mortar retailers.
Meanwhile, Westpac said the case for more rate cuts was strengthened despite slightly positive results in its consumer sentiment index for January. "It remains disappointing that despite a total of 175 basis points of cuts from the Reserve Bank since October 2011, the index is only 3.5 per cent about its level at that time," Westpac chief economist Bill Evans said.