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.

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