Value Of Retail Sales Growing

Value Of Retail Sales Growing

The value of Australia's retail sales grew 0.2%m/m in January (J.P.Morgan 0.8%, consensus -0.5%), after the fiscal stimulus-induced 3.8% surge in December. The rise in sales in January may owe something to leakage of spending into January in response to the Government's huge bonus payments to households paid in December. The biggest rise in spending, though, was for food, which grew strongly for the fourth straight month. Clothing sales rose firmly in January, which hints at increased discretionary behaviour in response to the fiscal boost, and perhaps the impact of heavy discounting, but sales of household goods dropped, albeit after a 10%m/m surge in December.

The 1.5%m/m rise in food sales (40% of total sales) is the fourth straight healthy rate of increase, which almost certainly reflects higher prices rather than volumes. Obesity levels already are at record highs, so it is difficult to imagine Australians consuming more food. Retail sales ex-food dropped 0.6%m/m in January, but this follows a near-6% bounce in December as some consumers rushed to the shops to spend their fiscal windfalls. Sales at department stores fell 0.5%m/m in January (after an 8.3% rise in December), and the fall in sales of household goods is the first since last September. Sales at cafes and restaurants rose 2.3% in January. The annual growth rate in the value of total sales increased to 5.9%oya, from 5.6% in the year to December.

The retail sales data has no material implication for today's RBA Board decision - anecdotes from some retailers had indicated that sales values were holding up, so the rise today should not come as too big a surprise. That said, today's other data - the unexpected positive contribution from net exports in 4Q, offset partly by weaker public spending, which means tomorrow's GDP print now is likely to be positive - does, albeit only at the margin.

With the economy now less likely to have contracted in the fourth quarter, RBA officials are free from the distraction of having to worry about how to explain a decision to leave the cash unchanged after today's Board meeting as the economy contracted if, in fact, they leave the cash rate untouched at 3.25%. Our view, though, remains that the RBA will trim the official cash rate another 50bp later today, with the decision triggered by the clear and material deterioration in economic and market conditions offshore, and despite recent evidence that Australia's economy is travelling better than most. The decision, though, remains a very close call.

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