SCOREBOARD: Sales shake

While December retail sales data appears soft, it's important to take several factors into consideration.

The data

- Australian retail sales fell 0.1 per cent in December, compared to the market and my call for a 0.2/0.4 per cent increase. Annually, sales are 2.6 per cent higher.

- By volume and for the quarter, sales rose 0.4 per cent which was lower than the market and my forecast for 0.6 per cent/0.8 per cent gains. Sales are up 1.4 per cent annually by this measure.

- ANZ job ads rose 6 per cent in January – biggest gain in almost two years.

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What it means

On the face of it, sales were soft in December, driven lower by food which fell 0.7 per cent (price induced) and cafes (down 1.8 per cent). Excluding those components, sales actually rose 0.8 per cent driven higher by a surge in clothes (rising 3.5 per cent) and department stores (gaining 1.1 per cent). Notwithstanding price falls and a weather-induced decline in spending at cafes, the major caveat to these numbers, and why they probably don’t reflect weakness in the retail sector more generally, is because they have been understating the national accounts for some time.

Recall that retail spending in both nominal and volume terms is much stronger according to the national accounts, which is much broader in its scope. Indeed, the purpose of this survey is to give us a guide to the national accounts – something it hasn’t really been doing for a while.

I would also note that the ABS seems to have applied a generous seasonal adjustment to this monthly data today. In actual dollar terms, sales were up over 25 per cent which is about normal for that time of year and a great outcome considering price deflation across many retail goods. If you apply a seasonal factor more in line with the average of the past few years, sales rose something like 0.6 per cent for the month.

The quarterly volume numbers show food, household goods and clothing were all strong in the quarter. Department stores, cafes and ‘other’ all fell.

I suspect there are few policy implications from today’s data. The limitations of this survey are well known to the RBA and as discussed in November and December, rate cuts weren’t really driven by domestic factors anyway – apart from the moderation in core CPI.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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