• The NAB Cashless Retail Sales Index gained 0.8% in October on a month-on-month basis, rebounding from a much weaker 0.2% in September. Four out of six major categories grew in the month; while food and household goods contracted.
• On the other hand, our data mapping suggests that the official ABS measure of retail sales will grow at a rather weak 0.2% month-on-month in October, unchanged from the ABS print in September. We previously forecast an increase of 0.4% for September (since revised to 0.5%).
• The NAB Cashless Retail Sales Index was up 11.0% year-on-year in October. Year-on-year growth is positive for all six NAB Cashless Retail Index major industry groupings. Cafes, restaurants & takeaways remains the fastest growing category (strengthening slightly to 16.7% y/y), followed by food (10.0%), department stores (9.9%), household goods (8.3%), clothing and footwear (7.2%) and other retailing (4.9%). Growth for household goods and clothing and footwear has moderated since last month. For more detail see Charts 3, 7 & 8.
• Retail spending patterns across Australia look to be reconverging after showing a wider gap over the past couple of months. The ACT remains the strongest performer in the monthly data, but the gap in growth between NSW, Vic, Qld, SA and WA is back to 0.3 percentage points. NSW, which was the fastest growing state as recently as March, has now been the slowest growing for the last two months on a monthly basis.
• 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. Likely reflecting the increasing popularity of online and contactless payments, the NAB Cashless Retail Index has continued to outpace the ABS measure of retail sales (10.8% y/y versus 3.9% y/y in September).

NAB Chief Economist, Alan Oster commented:

The NAB Cashless Retail Sales Index was up in October, recording 0.8% month-on-month growth. However, our mapping of the “official” ABS measure points to continued weakness – we see the ABS measure gaining 0.2% in October, unchanged from the September print.

Results continue to be mixed, notwithstanding the characteristic volatility in the monthly data. Furthermore, the weakness we are seeing in cashless retail sales is reflected in the NAB Monthly Business Survey. Retail, which already reported the weakest business conditions across all industries – weakened further in October and remains the only industry to report deteriorating conditions.

Our main concern for the Australian economy remains weak consumption growth – which is likely to weigh on broader economic growth (accounting as it does for over half of all economic activity). With an already low savings rate, weak wage growth, high debt levels and some anxiety from slower growth in household wealth – we see a very cautious household sector over the next couple of years. For more information on our economic outlook, see The Forward View: Australia.

The previous divergence in conditions between states is showing signs of abating, although some states are clearly performing better than others. Our monthly data shows that New South Wales has gone from being the fastest growing state in March this year to the slowest in September and October.

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, download the report below:

• NAB Cashless Retail Sales Index: October 2018 (PDF, 113kb)