Dismal December for retail as sales slump

William McInnes
Feb 5, 2019
AFR
Retail sales fell during December as online sale events in November reduced consumer spending in the weeks leading up to Christmas.
Australian retail turnover fell 0.4 per cent in December according to the Australian Bureau of Statistics, dropping well below market expectations for flat growth.
“Retail’s dismal run continued in the December quarter,” said BIS Oxford Economics chief Australia economist Sarah Hunter. “The data confirms that the strength seen in consumer in the first half of 2018 has definitely waned. Households are being forced to curb growth in spending as a result of weak income growth, and confidence appears to have taken a battering from heightened volatility in financial markets and falling house prices.”
Household goods and clothing and footwear led the falls during December after strong rises in November from Black Friday promotions.
Western Australia was the only state where sales grew during the month with biggest falls occurring in New South Wales, Victoria and the Australian Capital Territory .
The result meant December-quarter sales growth of 0.1 per cent was weaker than the 0.2 per cent rise in the September quarter.
While November’s retail sales growth of 0.5 per cent beat economists expectations of a 0.3 per cent rise, many had noted at the time that the result was likely to detract from December spending.
Foot traffic in retail stores in December was the worst on record as the changing spending calendar and increased online shopping left bricks and mortar retailers struggling.
Kmart, Kathmandu and PAS Group issued profit warnings or downgraded forecasts earlier this year after weak Christmas sales while David Jones revealed that sales tanked in the lead-up to Christmas.
Ongoing weakness
NAB reported on Monday its Online Retail Sales Index fell 1.4 per cent during the month of December but said the contraction couldn’t be blamed solely on the November sales.
“Large online sales events such as Black Friday, Cyber Monday, and Vogue shopping night have contributed to a strong result in November, and may have brought forward some Christmas spending to November,” said NAB chief economist Alan Oster.
“However, given these sales have been part of the online retail environment for some time, it is likely that the weak December read partly reflects underlying weakness in the retail sector.”
The Australian Industry Group Australian Performance of Services Index on Tuesday showed January is also expected to be weaker for retail sales. According to Ai Group chief executive Innes Willox, the retail sub-sector on the index recorded its weakest monthly result for over six years during the first month of 2019.
GDP risks
Economists are forecasting GDP growth for the fourth quarter will be weak on the back of the poor retail data.
“Overall this was a weak update, slightly weaker than we had been anticipating and highlighting downside risks to the December quarter GDP,” Westpac senior economist Matthew Hassan noted on Tuesday.
“For the RBA it comes on top of a third quarter national accounts update that already showed disappointing conditions across the consumer and confirms that the weakness is sustained rather than part of the choppy quarter to quarter profile that has featured over the previous two years.”
December’s trade balance figures were also released on Tuesday, with Australia’s surplus rising to $3,681 million, above expectations of a $2,225 million print.
“The increase in the trade balance to the second largest surplus on record was probably not as positive for real net exports as it appears at face value,” said Capital Economics economist Ben Udy. “In particular, an 8 per cent decline in oil imports was probably driven by a decline in prices, not volumes. All together, we suspect net exports made a small negative contribution to GDP in the fourth quarter.”