Sunday, 8 January 2012

Retail Sales Falter in November

Retail spending spluttered into November, continuing a run of grim news in that sector. Retail trade recorded zero growth in November having risen a cool 0.2% in October and 0.3% in September. Over the year to November, retail trade rose a very modest 3.1% in nominal terms, fitting with the ongoing run of local economic news that points to the economy growing at a below trend pace.

The November retail trade news further confirms the feeling that consumers are continuing to scale back spending in the retail space, preferring it seems to spend on other services, paring back debt and even adding to saving. These are no bad things in moderation, but the concern is that this retail funk is coinciding with other data on weak employment, falling house prices and a sharp deceleration in inflation.

There is one slight caveat – the monthly retail trade data are nominal. If there was heavy discounting and retail prices are falling, real growth in retail spending may be marginally more favourable, but we’ll see that with the December quarter data which are to be released next month. Put another way, retail trade volumes are either mired near recessionary levels or prices (inflation) are falling, news which should be disconcerting to any central banker.

Thankfully the RBA recognised these trends reasonably early and started cutting interest rates in November – its pre-emptive monetary policy action should see another gold star stuck on the wall in the Board Room in Martin Place. The monetary policy easing cycle will work to reverse the clear sub-trend performance of the economy into the end of 2011 and should help to support activity into the latter part of 2012, especially if it keeps nudging rates lower over the next six months or so, as seems likely. Well done RBA.

All in, the run of domestic news remains problematic and should feed into a further rate cut from the RBA in February. It is still four long weeks till the next RBA meeting and there is a bucket load of data to digest between now and then with news on inflation, employment, housing and December retail sales all hitting the wires, not to mention offshore developments in economics and markets. As things stand, an interest rate cut is close to a done deal.

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