Dec retail trade: –0.4%mth (mkt flat); 2.8%yr Q4 real retail sales: +0.1%qtr (mkt +0.5%); 1.6%yr. Poor finish to 2018 confirms consumer spend tracking a slower trajectory.

Retailers recorded a weak finish to 2018, monthly sales dipping 0.4% in December month and real retail sales up just 0.1% for Q4 as a whole. Both results came in below consensus but were only a touch under Westpac’s more downbeat forecasts.

The results underscore weakness already apparent in the Q3 national accounts and point to disappointing momentum heading into 2019.

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The 0.4% dip in monthly sales was against market expectations of a flat finish. Some of this likely reflects ‘residual seasonality’ – i.e. seasonal patterns that the ABS is struggling to adjust for. In particular, the rising popularity of ‘Black Friday’ sales is drawing more activity into Oct-Nov with a drop-off in Dec. It takes several instances for a changing pattern to become fully incorporated into the ABS seasonal adjustment and current estimates may still not be allowing for this adequately. Notably, unadjusted ABS figures on online retail suggest this component drove about 0.3ppts of the Dec monthly decline.

However, this technical issue does not detract from what is a clearly weak wider retail theme. At 2.8%yr, annual growth in nominal retail sales is sluggish at best with the six month annualised pace below 2%.

The quarterly wash up underscores the weak theme. Real retail sales rose just 0.1% in Q4, well below the consensus estimate of a 0.5% gain but closer to Westpac’s 0.2% call. The detail showed nominal sales up 0.7% but retail prices up 0.6% – firmer than in Q3 with non food retail prices showing a notable stabilisation over 2018.

Real retail sales were particularly weak in NSW, down 1.1%qtr, annual growth slowing abruptly to 0.6%yr from 2.9%yr mid way through 2018. Given the bigger and more advanced price correction in the Sydney housing market, this is an ominous sign that negative ‘wealth effects’ on consumer demand may be starting to come through.

About the only positive in the quarterly results was that the decline was concentrated in food (basic food down 0.2%qtr and cafes & restaurants down 0.5%qtr) with non food retail sales posting a more positive 0.6%qtr gain, annual growth slowing but a touch firmer at 2.5%yr.

Overall this was a weak update, slightly weaker than we had been anticipating and highlighting downside risks to the December quarter GDP. For the RBA it comes on top of a Q3 national accounts update that already showed disappointing conditions across the consumer sector and confirms that this soft result was not part of the choppy quarter to quarter profile that has featured over the previous two years.


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