Weakened consumer spending puts a dampener on retail sales

Australian retailers had a better January after a dip in sales in December but the bigger picture is one of consumers under financial pressure and spending cautiously.

Retail trade lifted 1.1% over the month after a 2.1% fall in December.

In November, the Australian Bureau of Statistics (ABS) recorded a 1.5% rise in retail trade.

The see-sawing monthly numbers are thanks to the growing importance of Black Friday sales, which ABS head of retail statistics Ben Dorber says brought a lot of December spending forward to November.

When looking through the volatility of the past few months, retail turnover was unchanged in trend terms, reflecting a still high cost of living and elevated interest rates.

“Rather, spending patterns have shifted because of changes in seasonality around Black Friday as consumers took advantage of discounting in response to cost of living pressures,” Dorber said.

Clothing, footwear and personal accessory retailing recorded the largest rise in January, up 2.4%, with all categories lifting over the month apart from food retailing, which fell a modest 0.1%.

NAB senior economist Taylor Nugent said the bounce in retailing was smaller than the 1.5% increase economists were expecting.

But, a big upwards revision to the December figure meant the result was pretty well in line with forecasts.

Zooming out, Nugent said retail spending was weak — just 1.1% higher than a year ago — and that was with strong population growth.

“That is reflective of the consumption response to real income pressures, and we expect weak consumption growth to be a feature of the December quarter GDP data released next week as well,” Nugent said.

Australian Retailers Association chief executive officer Paul Zahra said the annual data showed shoppers limiting their spending after Christmas and the first week of Boxing Day sales.

“The two strongest performers, ‘other retailing’ and cafes, restaurants, and takeaway, would have been bolstered by people wanting to enjoy their summer outdoors,” he said.

Zahra said discretionary categories suffered the biggest declines as households reined in their spending.

The statistics bureau also reported new business investment data, with private new capital expenditure up 0.8% in the December quarter of 2023 and 7.9%higher than a year ago.

The quarterly result was above the 0.5% lift expected but the pace of quarterly growth in spending has slowed from its 2023 highs.

AMP Australia deputy chief economist Diana Mousina said retail trade, business investment and other data released this week — including a softer-than-expected inflation report — was consistent with the Reserve Bank staying on hold in March.

“Stronger business investment will add to GDP growth, but the weakness in the consumer is an offset to stronger capital spending,” she said.

“We think that the RBA should shift to a neutral bias on monetary policy because the economy has already weakened, but the RBA’s concern around a renewed lift in inflation means they are likely to tread carefully and maintain its soft hiking bias for now.”

This article was first published by AAP.