NAB Cashless Retail Sales Index: October 2019

Our forecast points to a moderate improvement for retail in October, although this may be partly due to higher retail prices – as measured in our monthly business survey.

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This month we continue our podcast series to accompany the NAB Cashless Retail Sales Index. In this short podcast, you’ll get a quick summary of the major drivers of the index this month. Listen now.

Highlights

  • Our data mapping suggests that the ABS retail trade measure will rise 0.4% m/m in October. The ABS printed a 0.2% rise in September (we forecast 0.5%, revised to 0.4%). With the NAB Monthly Business Survey showing retail price inflation surging to 0.9% (at a quarterly rate) in October, real retail sales could be very subdued.
  • Much of the strength in nominal sales this month is in household goods and to a lesser extent food. Food is around 40% of the total and so small movements in the sector can have large impacts on the index. By state, New South Wales has gone from the second weakest performer (on a m/m trend basis) a year ago to the strongest performer this month.
  • The bottom line is that we remain concerned that retail sector fundamentals will continue to under perform, three official interest rate cuts this year notwithstanding. Higher unemployment, sluggish wage growth and elevated debt is likely to put the brakes on spending growth. Ultimately, more stimulus is needed to fundamentally change this equation.

NAB Chief Economist, Alan Oster commented:

Our forecast points to a moderate improvement for retail in October, although this may be partly due to higher retail prices – as measured in our monthly business survey. Margin compression has been a major challenge for the retail industry, and it is possible that retailers are trying to increase margin at the potential expense of volume. While retail conditions improved in our monthly business survey in October, it remains the weakest sector (alongside wholesale).

As we noted in our latest Australian economic forecasts, it appears that the recent tax cuts and rate cuts have done little to offset weakness in household spending. While these cuts provide a boost to income in the short-run, they are unlikely to address the impact of slow wage growth, high debt levels and stretched budgets which have all served to constrain household spending. We expect employment growth to slow from here, with private sector demand remaining weak. We see unemployment increasing to around 5.5% by the end of 2020 (and staying there in 2021), which will keep wage growth very subdued. Absent further fiscal stimulus, we do not expect much pick-up for the retail sector in the short term.

For more information, please see the NAB Cashless Retail Sales Index October 2019