Growth, inflation and labour market all easing
NAB’s proprietary indicator of Australian retail sales, the NAB Cashless Retail Sales Index, reveals a rebound in spending in the month of September.
NAB Chief Economist, Alan Oster commented:
“Retail spending appears to have bounced back the month of September, after poor outcomes in both July and August. NAB’s Cashless Retail Sales Index shows a rise of 0.2% mom, which suggests an increase in the “official” ABS measure of retail trade of 0.6% in the month.
“This is an encouraging signal, although we note that spending has continued to slow in yearly terms, suggesting we will need to see further improvement in coming months before declaring that severe pressure on retailers has come to a halt. Indeed NAB’s Business Monthly Business Survey continued to report negative business conditions for retailers, the weakest of all industry groups.”
“The surge in employment growth since March may support retail spending in coming months. Other factors meanwhile may continue to weigh. These include low wages growth, with recent analysis by NAB in its State Economic Handbooks showing that consumer spending has been outpacing labour income growth in nearly all states and territories. This is consistent with the decline in the national savings rate – it is not clear whether this has been voluntary or involuntary. High energy costs and elevated levels of household debt are also legitimate concerns of households at present.
“Weakness in retail sales in nominal (value) terms may also reflect price deflation, or disinflation, for some retail goods, with retailers struggling to pass on cost increases amidst relatively weak consumer demand and cost increases. CPI data for Q3 released in October will give us a better feel for this.
“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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