Retail spending 2012
Over 2012 as a whole, Australians spent $256.1 billion at retail outlets. Spending was up 3.1 per cent over 2011 – the strongest calendar-year growth in three years.
The 3.1 per cent growth in spending was below the decade-average (“normal”) growth rate of 5.0 per cent. But the weaker-than-normal growth was due to low prices, rather than weak spending. In real (inflation-adjusted) terms, retail trade grew by 3.2 per cent in 2012 – the strongest calendar year growth in five years.
What does it all mean?
- Economists are fond of looking at monthly or quarterly statistical data. But sometimes it pays to step back and looking at longer-term trends. And that longer-term perspective pays off when it comes to retail spending. Over the past three months retail trade fell – the first time it has fallen for three straight months in 13 years. But spending was actually quite firm in the early and middle part of the year. For the year as a whole, retail trade rose by 3.1 per cent – the strongest growth in three years. And if inflation is stripped out, spending grew by 3.2 per cent – the strongest growth in five years.
- The bottom-line is that 2012 wasn’t a bad year at all in terms of retail spending. That doesn’t mean that it wasn’t tough for retailers. Retailers were forced to trim margins and cut prices to move stock. But generally it worked; growth in spending was faster than the average growth pace recorded over the past five years.
- In fact department store sales grew by 1.9 per cent in real terms in 2012 – that is, there was a 1.9 per cent lift in the number of goods that were purchased over the year. That was actually the strongest calendar-year performance in five years – the strongest since spending rose by 4.7 per cent in the 2007 year.
- Supermarkets also recorded the best real growth in spending in eight years – growth of 4.3 per cent in 2012 was the strongest since 2004. Specialised food outlets like butchers and fruit & vegetable shops recorded the strongest calendar year growth in five years (5.3 per cent real growth). Electrical good retailers had the best year in four years (6.2 per cent growth). And pharmacies recorded the strongest growth in three years (10.3 per cent).
- It is also important to note that Aussie consumers have been spending in different ways. Aussies have been taking holidays overseas in record numbers and a record number of cars were purchased in 2012 as well. Broader consumer spending grew by 3.3 per cent in the year to September (December quarter figures aren’t available yet) – above the 2.8 per cent average growth over the past five years and broadly in line with the decade average growth rate of 3.4 per cent.
- The interesting point is that retail spending seems to have softened since the Reserve Bank started cutting rates in mid 2012, not accelerated. Given that there are more term and “other” deposits in the economy than owner-occupier home loans, the people that rely on interest income may have curtailed their spending to a greater extent in response to rate cuts than home buyers have lifted spending.
What are the implications for interest rates and investors?
- Consumers don’t spend evenly over the year. If there are government hand-outs, major discounts, price wars or periods of more buoyant consumer sentiment sparked by firmer share or home prices, then consumers will spend. But once the purchases are made, then Aussie consumers may retreat to the sidelines for a while.
- We’ll have to wait and see what the January spending results show, but the anecdotes suggest that consumers came out of their bunkers to spend in the post-Christmas sales after a quiet spending period from October to December.
- But on balance, 2012 could hardly be described as a weak year for consumer spending. Retailers may have had to keep a lid on prices, but Aussie consumers did respond by buying more over 2012.
- Few are suggesting that retailers will be able to let up on their discounting activity any time soon, but a lot will depend on how consumer confidence tracks in coming months. Retailers will have to keep a lid on costs, improve marketing and customer service, and maintain competitive pricing to keep stock turning over.