Every year around Christmas the news is full of stories from retail groups boasting of how the sales this year are the biggest ever, so it was with a fair amount of cold water that the latest retail turnover figures released on Friday showed that trade was absolutely flat in December. While the figures were not as bad as 0% growth might suggest, they do show signs of households being more circumspect about spending than they have been for some while.
One of the problems with retail trade figures is that for the most part we talk in terms of current dollars. So when the Australian Retail Association talks about the Christmas sales setting a record, it’s actually not that big of a statement. Things for the most part cost more now than they did a year ago, and thus even with small wage growth, generally each December we spend more in the shops than we did a year earlier.
The other problem with retail trade figures is that they are affected by seasonal factors perhaps more than most other statistics.
While the seasonally adjusted figures showed that in December there was just 0.03% growth over the sales in November, in reality Australians spent 23.9% more in December than they did in November, and 4.7% more they did in December 2014:
But we don’t really bother with original data because it doesn’t tell us a whole lot – it’s no big surprise to discover we shop more in December than we do in November and we will always do so unless Christmas gets shifted to 25 November.
The seasonally adjusted figures attempt to give us an idea of how much more we spent in December taking into account that every year we always spend big in that month. But even the seasonally adjusted figures can be a tad excitable:
The trend growth in December was a fairly respectable 0.3%. However, even the trend figures struggle a bit in the retail world.
The release of the iPhone 6 in August 2014 saw such a big jump in the sales that it “broke” the trend line. And its most recent incarnation last year also wrecked havoc with the figures.
The biggest drag on the retail turnover figures in December were electrical and electronic goods – those sales fell 1.7% in December. But this is not all that surprising given the latest version of the iPhone was released in September. In September and October electrical goods sales rose 3.1% and 1.9%. If we excluded electrical and electronic sales from the total figures, then December trade would have gone up by 0.2%.
It’s why even with the weak December figures, the annual growth is a fairly respectable 4.0% in trend terms and 4.2% seasonally adjusted:
It also goes to the changing nature of our consumption habits and the importance of December in the retail figures.
Thirty years ago, 43% of our retail spending was on food (from supermarkets etc) and from cafes, restaurants and takeaways. By the turn of the century it was up to 49% and in December last year it was 53%:
And while we do spend more on food and eating out in December than in other months – all those big Christmas lunches – December is less important for those sectors of the retail industry than all others.
For department stores, December is worth almost two months of the year in sales. For clothing and footwear, December is equivalent to six weeks:
And thus as our spending habits have turned from spending in department stores and on clothing to food and eating out, the month of December has become less important:
Mostly however, this isn’t because of a big change in our tastes, but because non-food purchases have become relatively cheaper over the years. Think about how much a DVD player cost 15 years ago relative to, say a meal at McDonalds, and you get an idea.
In essence, we haven’t actually taken to eating out more, just that more of our weekly spend is being taken up on food and eating out. We actually buy a lot more household goods than we used to, but they also cost much less now:
Looking at the growth in the volume of how much we spend is important because household consumption has been a big driver of GDP growth – in the past year it contributed only slightly less than net exports. And real GDP growth looks at volume not current dollars.
The ABS only measures retail volume spending each quarter, and in the December quarter it grew by 0.6% in trend terms and by 2.5% over the past year – down from 3.1% in the September quarter.
Retail spending does not include all of household consumption – it doesn’t for example include education and health spending, or other services, but the two measures have shown good parallels over the past decade:
The slight slowing in the growth of retail spending volume is not particularly indicative of a strong economy, but the growth of 0.6% in volume at least provides some counter to the gloom of the 0% spending growth in current dollars.
The figures, however, also provide some signs that the housing boom is on the wane.
In NSW spending on furniture, floor coverings, homeware and textile goods – things that you buy for a new home – grew by just 0.6% in 2015 – well down on the 21% growth that occurred in 2014. Similarly the growth of such spending in Victoria has fallen drastically in the past six months:
Despite the 0% growth in trade recorded in December, the retail figures are not a horror show. But they do point to somewhat of a slowing, and not just in things we buy in the shops but also in the housing sector.
And they certainly suggest households are at best less eager to spend money than they have been for almost two years, which is not a great sign for an economy that relies on households to power much of its growth.