Aussies maintain retail therapy
Retail trade; Purchasing manager indexes; Covid-19 survey

Retail trade: ‘Preliminary’ retail trade rose by 0.6 per cent in January to stand 10.7 per cent higher than a year ago.

Purchasing manager indexes (PMI): The IHS Markit ‘flash’ PMI for manufacturing eased from a 49-month high of 57.2 in January to 56.6 in February. The services business activity PMI fell from 55.6 to 54.1 in the month. The composite PMI eased from 55.9 to 54.4. Readings above 50 indicate an expansion in activity.

Covid-19 survey: The Australian Bureau of Statistics released its December survey of Aussie households. Almost three-quarters of Aussies say that they will get the Covid-19 vaccine.

Retail trade data is important for consumer-focussed companies. The ‘flash’ purchasing manager’s index gives a guide to conditions in manufacturing and services sectors. ABS surveys provide insights into how COVID-19 is affecting the economy.

What does it all mean?

• Aussie consumers continue to embrace retail therapy as their way of getting through the pandemic. While there was only a modest 0.6 per cent lift in sales in January, monthly results continue to be influenced by lockdowns. NSW and Queensland sales were affected by lockdowns. Victorian and Western Australian sales data in February will be affected by lockdowns..

• Importantly, sales in January were a massive 10.7 per cent higher than a year ago. Over the last six months annual sales have averaged 9.1 per cent. Super-low interest rates, job gains and job confidence together with the closure of foreign borders and stimulus payments are all encouraging Aussies to spend at local businesses.

• As Coles noted, the closure of foreign borders will dry up a source of spending growth in coming months. While the closure will affect supermarkets, the home building boom will lift spending across hardware and homewares.

• The latest survey suggests almost three-quarters of Aussies will get the Covid-19 vaccine. Businesses dependent on overseas travel, education, foreign workers will hope that these take-up rates will be even higher – here, as well as overseas – if there is going to be any hope of opening foreign borders this year.

What do you need to know?

‘Preliminary’ retail trade – January

• “The seasonally adjusted estimate rose 0.6 per cent ($169.5m) from December 2020 to January 2021. In seasonally adjusted terms, Australian turnover rose 10.7 per cent in January 2021 compared with January 2020.”

• The ABS noted: “Following a fall of 4.1 per cent in December 2020, there was a 0.6 per cent rise in January 2021.

• There continues to be variations in retail sales between states and territories, as COVID-19 restrictions are tightened or eased in different parts of the country.

• All states and territories rose, except for Queensland. NSW led the rises, up 1.0 per cent, as Greater Sydney saw COVID-19 restrictions eased in January.

• Queensland saw a fall of 1.5 per cent, with COVID-19 restrictions in Brisbane leading to falls, especially across Household goods retailing, Clothing, footwear and personal accessory retailing, and Department stores.

• There were mixed results across the industries. Food retailing led the rises, up 1.8 per cent following a 1.7 per cent fall in December 2020. Victoria and NSW led the rises in Supermarkets, after restrictions impacted Christmas celebrations in December 2020.

• The rises were partially offset by falls in Clothing, footwear and personal accessory retailing, Household goods retailing, and Department stores, which were industries impacted by a three day lockdown in Brisbane.”

Household Impacts of Covid-19 Survey
While there are a range of interesting results in the survey, the more up-to-date January results will be issued on Monday. Encouragingly the ABS reported:

For owners with a mortgage in the last four weeks:

• 3 per cent had the mortgage payment for their dwelling reduced (excluding interest rate reductions)

For renters in the last four weeks:

• 2 per cent had the rental payment for their dwelling reduced

‘Flash’ purchasing manager indexes

• “The IHS Markit ‘flash’ PMI for manufacturing eased from a 49-month high of 57.2 in January to 56.6 in February. The services business activity PMI fell from 55.6 to 54.1 in the month. The composite PMI eased from 55.9 to 54.4. Readings above 50 indicate an expansion in activity.”

• IHS Markit noted: “Business confidence improved to a two-and-a-half year high on the back of hopes that the coronavirus disease 2019 (COVID-19) pandemic will come to an end, leading to further expansions in activity. Sharp inflationary pressures were signalled, with input costs increasing at the quickest rate in nearly five years of data collection and selling price inflation at a 28-month high.”

What is the importance of the economic data?

• The ABS now provides preliminary estimates for Australian retail turnover. “This estimate is compiled from the monthly Retail Business Survey and is based on preliminary data provided by businesses that make-up approximately 80 per cent of total retail turnover and is therefore subject to revision.”

• IHS Markit undertakes a survey of purchasing managers across manufacturing and services sectors. The ‘flash’ or ‘early/preliminary’ readings provide timely information on the economy. As such, the survey is valuable for investors.

• The Australian Bureau of Statistics (ABS) is providing updates on the coronavirus impact on households and businesses to provide timely information for decision makers.

What are the implications for investors?

• Economic recovery continues. While purchasing managers reported softer readings for activity in manufacturing and services sectors in the past few weeks, the data is still consistent with expansion.

• Retail sales growth rates will moderate over 2021. No surprise that 10 per cent plus annual growth rates will moderate and underlying growth rates between 2-5 per cent will be more likely, especially with population growth moderating. Volatility in spending growth in recent months reflects lockdowns as well as the change in spending patterns as people favour November rather than December for Christmas purchases.

• Lower mortgage and rent payments continue to support consumer spending. Rising prices for homes and used cars add further support to spending, especially on bigger ticket purchases.

• Yet again a business survey has identified inflationary pressures developing. More businesses are experiencing rising input costs and an inability to hire new workers. In response to the stronger economic recovery, 10-year bond yields have lifted 30 basis points (to 1.37 per cent) in three weeks.

Published by Craig James, Chief Economist, CommSec