Volatile retail sales numbers a key concern
It is a sure sign that things are on the edge in Australia economically when news of a slowdown in sales of something as trivial as avocados makes front page news, and sparks warnings about the economy.
The shares of fruit and vegetable producer Costa Group sank 40 per cent on the profit warning on Thursday, while some warned it could demonstrate consumer spending was in rapid decline, and the next thing would be confirmation of an economic slowdown.
“Reports of weaker-thanexpected avocado sales — less demand for smashed avocado and feta on rye toast? — may be telling us something,” said Shane Oliver, chief economist at AMP Capital.
Dr Oliver, who expects the next move in interest rates to be down, was seeing the funnier side of the situation, but beneath it all is an intense uncertainty about the Aussie consumer.
The outlook for consumer spending will dictate a lot in 2019, beyond about how fast the economy grows, and how the Reserve Bank of Australia responds in terms of raising or lowering interest rates.
RBA board member Ian Harper warned in an interview in late 2018 that considering consumer spending is a major driver of the economy, even a small slowdown would have an immediate effect on activity.
Headwinds for consumers include record household debt, flat wages growth, and tumbling house prices. Banks have also tightened the mortgage credit taps, while a federal election, likely in May, is set to generate more uncertainty.
The RBA ended 2018 signalling clearly it has no intention to cut interest rates, yet uncertainty locally and globally (trade tensions, China slowdown) has led markets to price in an interest-rate cut before the end of the year.
Data yesterday showed retail sales rose 0.4 per cent in November, a bit stronger than the 0.3 per cent expected by economists, and the best result since mid-2018. But the news did little to ease concern about consumer spending.
The better-than-expected outcome reflected strong demand for household goods, clothing and footwear. Sales for October weren’t revised. The best performers for the month were clothing (up 1.5 per cent on the month), and household goods (1.2 per cent on the month).
More than anything, the data reflected changing spending pat- terns with consumers taking advantage of Black Friday and Cyber Monday sales in late November, still a relatively new thing for shoppers in Australia.
“Strong promotional activity, including Black Friday sales” drove the rise, the Australian Bureau of Statistics said.
A strong November, however, doesn’t suggest a bumper December is in the offing. To be sure, early indicators of sales in December, a critical period for retailers, aren’t encouraging.
“December retail, and the success (or not) of Christmas trading, remains key in determining the health of the consumer going into 2019,” said UBS economist George Tharenou.
Last week, outdoor retailer Kathmandu warned that samestore sales fell 1 per cent in the 22 weeks ended December 30.
However, fashion retailer Noni B this week said it was pleased with the sales leading into the Christmas period.
Michael Blythe, chief economist at the Commonwealth Bank of Australia, has analysed the bank’s transaction data for December, and estimates that cumulative spending from November through early January fell 3.7 per cent from a year earlier.
“The headwinds from weak income growth and high debt levels are still blowing,” Mr Blythe said.
It means policymakers at the RBA will remain watchful, keeping official interest rates at their current record low of 1.5 per cent for a while yet.