Below trend growth to continue
The NAB Cashless Retail Sales Index gained 1.1% in August on a month-on-month basis, following a gain of 0.7% (revised) in July.
NAB Chief Economist, Alan Oster commented:
The NAB Cashless Retail Sales Index strengthened in August, recording 1.1% month-on-month growth – its best result since March 2018. However, our mapping of the “official” ABS measure points to another lacklustre result. The ABS recorded a flat print in July and our data suggests that this will occur again in August.
While the monthly data are volatile; we continue to observe weakness in the retail sector in other data, such as the NAB Monthly Business Survey. While retail business conditions rose in August, the sector remains the weakest in the survey and the only one to record negative conditions. That said, retail prices improved in August, up 0.9% at a quarterly rate.
Wage growth has been weak for some time, dampening consumer sentiment. However, our forecasts point to a pick-up in wage growth, in line with our expectation of moderately lower unemployment. On the other hand, falling house prices – particularly in Sydney and Melbourne – could begin to act as a dampener on retail spending.
The convergence we have seen in cashless retail sales growth across Australia continued in August. While the ACT is the fastest growing jurisdiction on a monthly basis, there is relatively little separating the other states and some of the weakness in NSW earlier in the year has dissipated.
NAB’s index is derived from personal transaction data from NAB platforms (around 2 million transactions per day) and includes all cashless retail spending by consumers using debit and credit cards (both in person and online), BPAY and Paypal. NAB’s Cashless Retail Index is reasonably assumed to be representative of aggregate non-cash retail sales in Australia given its large sample size. The average growth rate for NAB’s index is stronger than the official ABS measure of retail trade given that it does not capture cash transactions, which is why we use our mapping equations to forecast the official ABS measure of retail trade. RBA research suggests 18% of the value of retail trade occurred via cash in 2016. Over time, the growth rates of the two series are likely to come together.
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