- Retail trade rose by a soft 0.2% in December. Annual growth has come down to 4.1%
- The volume of retail spending still remains high. In volume terms, retail trade increased by a solid 1.5% over QIV. Weak nominal spending vs high volume growth reflects a significant degree of discounting occurring in the retail sector.
- Spending rose in clothing, footwear & personal accessories and food. Retail trade fell across the department stores and household goods.
- Low petrol prices, a falling Aussie dollar and a drop in the average mortgage rate is positive for the retail sector in 2015 provided confidence lifts.
The small rise in retail trade over December reflects subdued consumer confidence and anecdotes from retailers of modest Christmas spending.
Across the categories, the highest increase in spending over December was in clothing, footwear & personal accessories (+2.7%) and in food retailing (+0.3%). Retail trade was weak in department stores fell (‑0.9%) and household goods (‑0.4%). Spending was flat in other retailing and in cafes, restaurants and takeaway food services.
The pick up in clothing and footwear sales could be a reflection of the drop in the currency redirecting prior offshore spending (people travelling overseas and buying online) back onshore. Growth in imported consumer goods and tourism debits looks to be slowing.
It was disappointing to see a drop in household goods spending. In recent months, spending on items related to the residential construction upturn (such as hardware, building, garden supplies, furniture, floor coverings etc) was increasing at a solid rate. We may see spending lift in this category looking ahead given the strong activity in the residential construction sector.
Following high growth rates over 2014, spending in cafes, restaurants & takeaway food services has fallen noticeably. Annual growth is now near 5%, after running around 11% in mid‑2014.
In today’s data we also received the volume data. Retail volumes rose by a high 1.5% in QIV, ahead of forecasts for a 1.1% rise. The reason for the strong volume growth is because of weakness in retail prices. Retail prices were flat over QIV which demonstrates the discounting and income pressures faced by the retail sector. This is reflected in weak business confidence. The “retail” component of the CPI was indicating a stronger outcome for price growth – around 0.6% over QIV. Retail volumes look like they will add around 0.3ppts to QIV GDP growth. We expect QIV GDP to be around 0.8% over the quarter and 2.6%pa.
Household disposable incomes are receiving a sizeable lift to disposable income from a lower petrol price. On average, the drop in petrol prices should boost household disposable income by $60/month. The RBA interest rate cut this month may also provide a boost. But, there is the chance that consumers maintain their current repayment rates on mortgage debt, as we saw in the prior rate cutting cycle, which means the benefit to retail spending may end up being lower than expected.
