Australia | Feb 04 2010
By Chris Shaw
Having risen in both October and November Australian retail sales were expected by many in the market to follow a similar trend in December. The median market forecast was for a 0.2% increase, but the outcome surprised as nominal retail sales recorded a fall of 0.7% instead in seasonally adjusted terms for the month.
All categories fell in the month with the exception of the cafe, restaurants and take-away foods sector, which rose 2.5%. New South Wales was the only state to post a gain, recording a rise of 0.1%. ANZ Banking Group senior economist Julie Toth notes one feature of the result was the large seasonal adjustment, as in original terms December’s nominal retail trade was actually 24.5% higher than for November, which is an outcome exactly in line with the December monthly rises in previous years.
What makes the seasonally adjusted December result look worse, according to Toth, is the November data were revised higher to a gain of 1.5% from 1.4% previously, while annual turnover growth fell from 7.1% in November to 2.1% in December.
According to economists at Westpac, the monthly data cast doubts on the pace at which spending growth is traveling post the fiscal stimulus measures, as the headline number suggests overall momentum remains relatively sluggish. This reverses some of the indications of previous months as the 0.3% increase in trend sales indicates an annual rate of growth of around 4% compared to previous estimates of an acceleration to around 5.5%.
While nominal sales disappointed, quarterly sales volume data were not as bad. Toth notes for the three months to the end of December this measure gained 1.1%, which was largely in line with market expectations of an increase of around 1.0%. This was more than enough to offset the 0.7% fall recorded in the September quarter.
Westpac suggests the quarterly data show the retail sector has largely recovered from its household stimulus payments induced hangover, with the rise in sales volumes likely to mean the retail components of consumer spending will add around 0.35 percentage points to December quarter GDP, compared to a subtraction of 0.2 percentage points in the September quarter.
In Toth’s view there was little in the numbers to deter the Reserve Bank of Australia (RBA) from introducing further delays in its rate tightening schedule, a view the market seems to share as Westpac notes the bond market is now pricing in only a 30% chance of a rate hike when the RBA meets in March.
Commonwealth Bank senior economist John Peters took the view after today’s data the likely key drivers of retail spending in 2010 are now emerging, these including improving labour market conditions, a stronger Australian dollar and rising consumer confidence and house and equity prices. Peters continues to expect the RBA will lift rates by a further 1.25% by the end of this year.
The Australian dollar dropped immediately after the release of the retail sales number but quickly recovered most of the losses. As Westpac points out, weakness on metal prices overnight and poor New Zealand unemployment data are also weighing on the currency at present.
