Despite the usual blarney from retail trade organisations about how the Christmas sales went gangbusters, figures released yesterday by the Australian Bureau of Statistics showed retail trade fell 0.1% in December. But the news is not all bad. While the amount of money handed over by consumers fell, the volume of things they bought increased – suggesting the amount of economic activity remains positive even if retailers are having to offer discounts to get people into the shops.
The retail trade figures are a very good example of why data can be confusing. The news that ABS found sales in December were 0.1% below that of November sounds utterly bizarre. How can there be a lower turnover in December when you have the mass of people out shopping for Christmas and then the Boxing Day sales?
The reality is December is always the biggest month for retail sales. The four weeks of December are equivalent to around six weeks’ worth of sales any other time of the year:
But it doesn’t tell us much to say that in December sales rose by 23.6%, and neither would it tell us much to say that in January they will have fallen by around the same amount.
What matters is the seasonally adjusted and trend figures – which take into account that December is always the biggest month. The fall of 0.1% in December sales was in the seasonally adjusted terms, and is the worst December monthly growth since 2009.
The good news is that the seasonally adjusted figure can be a bit erratic, and the trend growth of 0.3% is not too bad – if not overly great:
The annual growth figures are a better way to judge how things are going – and as with so much of economic data at the moment the picture is one of not great, but not completely awful.
The 3.2% trend growth is as low as it has been since 2013, but remains at least above the 2% annual growth observed at times during 2010 and 2011:
But there is also reason to not get too worried about the poor December figures. For the most part the reason for the drop in turnover was due to a 2.3% fall in sales for household goods – the biggest monthly fall in that group since January 2012.
The fall in sales of those household goods however was due to one category of that group – hardware, building and garden supplies retailing. Sales in that category fell by a stunning 6.6% - the biggest monthly fall since July 2000 and the fifth biggest monthly fall all-time.
The drop in sales in that category was so big that if we excluded it from the total retail trade figures, rather than fall of 0.1%, trade in December would have grown by 0.4%:
The other bit of good news with the figures is that while there was a fall in nominal dollars, the quarterly volume figures increased in the December quarter by 0.9%.
The increase in the volume of sales of household goods was actually the biggest of all categories in the December quarter:
The fall in the nominal sales and increase in volume of sales suggests that while the number of people out buying things in the shops was quite good, businesses were having to offer discounts to get people spending money.
And while turnover in nominal (or current) dollars matters because that affects profits and reflects people’s willingness to spend money, the growth in volume of retail trade is important for measuring economic activity.
Real GDP measures volume of activity and the biggest component of GDP growth over the past decade (and further) is household consumption – well above any other economic activity. We are a nation that thrives on households buying things:
And while retail trade is not all of household consumption (it doesn’t include most services or things like motor vehicles) there is a relatively good relationship between the two:
While the fall in retail trade figures for December is not a particularly good sign, given it was mostly driven by a massive fall in one sub-category and the volume of sale increased, things aren’t as bad as that overall figure might suggest.
The 0.9% quarterly growth in the volume of retail sales suggests household consumption growth in the December GDP figures should be quite solid. If nothing else household consumption growth should improve on the 0.4% growth in the September GDP figures, as that was the lowest such growth for three years.
But the annual growth of retail trade volumes shows that despite these silver linings, things are not overly rosy.
The annual growth of retail trade volume has been falling in trend terms since September 2015, and at 1.5% is the lowest level for five years:
Retail trade hasn’t grown by more than 4% annually since the March quarter in 2010 – the longest stretch below 4% ever recorded. It is now 27 quarters since annual growth has been over 4%, the next longest such streak was a mere eight – back in the 1990s recession.
It means our GDP growth becomes more reliant upon households buying services and also on non-household consumption aspects. And as we found last quarter when GDP actually fell, that makes for a more erratic picture, and also one where the good health of the overall economy may not be felt as much by households.
