• The NAB Cashless Retail Sales Index shows a slowdown in December following a strong November. Mapping through to the official measure of retail sales suggests a decline of 0.3% in December after a strong 1.2% rise in November to be published by the ABS when released on 6 February. The weaker result this month was driven by declines in household goods related to the introduction of the iPhone (the electronic goods sub-category fell 2.0% mom following a revised 3.8% increase in November), as well as in food, departments stores and ‘other retailing’.
• We should be cautious about reading too much into monthly movements in NAB’s data and the official ABS measure of retail sales at present. This is due to changing seasonal patterns (in this instance because of the introduction of Black Friday sales to Australia and the timing of the latest iPhone release). The underlying pace of growth however appears reasonable, with average growth in NAB’s Cashless Retail Index of 0.45% in November and December, and the “official” ABS measure expected to average 0.3% m/m.
• Yearly growth in NAB’s cashless retail index was 8.7% yoy, compared with much slower growth in the ABS measure. NAB’s series does not include cash payments and also includes a larger share of online purchases, a difference which may become even more critical as a greater share of Christmas shopping shifts online.
• Looking specifically at the NAB Cashless Retail Sales Index, spending at cafes, restaurants & takeaways remains the fastest growing category (16.6% yoy), with spending on ‘other retailing’ strong (9.9% yoy). Spending on household goods has also picked up in recent months (14.4% yoy), and spending on food remains solid (5.5% y/y). Meanwhile, clothing & footwear sales are growing at a meeker rate (2.9% yoy), and growth in department store sales was negative. (Charts 3, 7 & 8).
• Spending growth is also relatively broadly-based across the states. NSW (9.1% yoy) and Victoria (8.9% yoy) are the standouts, with Queensland (8.0% yoy), the ACT (7.7% yoy) and South Australia (7.2% yoy) not far behind.  While WA remains the laggard, although the gap has narrowed (5.3% yoy) (Chart 4).
• The NAB Cashless Retail Index is broader than the NAB Online Retail Index and measures all cashless retail spending by consumers using debit and credit cards (both in person and online), BPAY and Paypal. The index is derived from personal transaction data from NAB platforms (around 2 million transactions per day) and offers a 2-3 week lead on ABS retail trade data.

NAB Chief Economist, Alan Oster commented:

“While retailers may be recording a good Christmas, NAB’s data based on around 2 million transactions per day suggests a slowdown in the month of December. This may be partly due to changing spending patterns between months, with Black Friday sales and the release of the newest iPhone in November this year driving a particularly strong November and then pull back in December. The impact of the iPhone can be seen from the wild swings in the electrical & electronics sub-component, but changing seasonal patterns are also evident in other categories such as food, department stores and ‘other retailing’.

“Averaging November and December however suggests a moderate pace of growth in recent months – 0.45% monthly growth in the NAB Cashless Retail Index and a prediction for an average 0.3% monthly growth in the ABS data when released. This suggests some improvement in the underlying pace of growth in the fourth quarter following a slowdown in the third quarter of 2017.

“The moderate pick up in retail spending is consistent with continuing strong employment growth in the latter months of the year, and a total of 400K jobs added through 2017 as a whole, 300K of which were full-time. This appears to be supporting not only consumer confidence but also spending, even though wages growth is exceptionally low.

“Despite some tentative evidence that households are loosening the purse strings a little, NAB’s Business Survey continues to suggest that the retail sector is struggling, with business conditions in slightly negative territory which suggests negative growth. This could be because retailers can’t pass on cost increases, as conditions for wholesalers are strongly positive, but also because of competition from offshore and online – NAB’s Cashless Retail Index includes a larger share of online sales than the ABS measure, which go some way to explaining the faster growth rate.

“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.”

For more information, please refer to the attached report:

• NAB Cashless Retail Sales Index: December 2017