NAB Cashless Retail Sales Index: September 2019

This month’s result points to a further improvement in retail sales, albeit from a low base.

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This month we continue our podcast series to accompany the NAB Cashless Retail Sales Index. It’s a short, 10 minute podcast, designed to give you a quick summary of the major drivers of the index this month. To listen, just click the link below.

Highlights:

  • Our data mapping suggests that the ABS retail trade measure will rise 0.5% m/m in September. If this transpires, it will be the best monthly print for retail sales since February. The ABS printed a 0.4% rise in retail sales in August (we forecast +0.3%), so our forecast offers a continued improvement (albeit from a low base).
  • Nevertheless, we remain concerned that the fundamentals underpinning the retail sector will remain weak, suggesting that a recovery in the retail sector is unlikely in the foreseeable future. While the recent tax and cash rate cuts have provided some stimulus, low wage growth is likely to see the Australian consumer remain subdued for some time. Our internal data continues to point to consumers essentially spending less than 20% of their tax cuts. More stimulus is likely needed to fundamentally change this equation.
  • Much of the strength this month appears to be in household goods and more prominently cafes, restaurants and takeaways. The latter is much more likely to be affected by cash transactions and we have some doubts about whether this will be sustained.

NAB Chief Economist, Alan Oster commented:

This result points to a further improvement in retail sales, albeit from a low base. This result is probably a little more optimistic than the retail sector data in the September NAB Monthly Business Survey. The survey suggests that there was little improvement in the retail sector in September with conditions improving but remaining very low in trend terms. While both trading and profitability in retail improved in the month, they remain relatively low. Employment was unchanged but is around its lowest level since the GFC. Survey price indicators suggest inflationary pressure is likely to remain weak.

While tax rebates and three rate cuts this year are likely to have provided – and will provide – some support to household spending, we consider that more stimulus will be required to provide a material turnaround in consumption.  Further, it will take some time to flow through. We see the RBA cutting rates again in December to just 0.5%. Our latest forecasts continue to point to reasonable employment growth, but we still expect the unemployment rate to rise to 5.5% over the next year or so and for wage growth to remain weak (although improving slightly). This will remain the biggest challenge for the retail sector.

For more information, please see the NAB Cashless Retail Sales Index September 19