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Consumers keep spending; Record trade surplus

Retail trade; International trade; Used vehicle prices

Retail trade: Retail spending lifted by 0.5 per cent in January (consensus: +0.6 per cent) to be up 10.6 per cent on the year.

Foreign trade: The trade surplus rose by $3 billion to a record $10.1 billion in January (consensus: $7.5 billion surplus). Australia has posted 37 successive monthly trade surpluses. The rolling annual surplus lifted from $73.248 billion in the year to December to a record $80.095 billion in the year to January.

Used vehicle prices: The Datium Insights-Moody’s Analytics Used Vehicle Price Index increased by 36.5 per cent on a year-ago basis in February. This is the highest rate of appreciation for a series that goes back to 1999.

Retail trade data is important for consumer-focussed companies. The trade data is instructive on income flows in the economy and consumer and business activity and has implications for the currency.

What does it all mean?

• It just gets better. Consumers kept spending in January with sales up more than 10 per cent on a year ago. And given the still high household saving rate, there is plenty more scope for retail therapy. And Australia continues to pay its way in the world with the trade surplus at record highs.
What do you need to know?

• Retail trade – January 2020

• Retail trade rose by 0.5 per cent in January after falling by 4.1 per cent in December and after rising by 7.1 per cent in November. Compared with a year ago, retail trade was up by 10.6 per cent.

• Details of spending by industry are in the accompanying table. Recreational goods (sports, toys, entertainment) rose the most (up 7.2 per cent) from Specialised food (fruit, veg, butchers etc) (up 3.1 per cent); and “other retailing” (on-line, flowers stationery etc) (up 2.8 per cent).

• Across states and territories in January: NSW (up 0.8 per cent); Victoria (up 1.0 per cent); Queensland (down 1.5 per cent); South Australia (up 0.4 per cent); Western Australia (up 2.1 per cent); Tasmania (up 1.0 per cent); Northern Territory (up 0.6 per cent); ACT (up 0.6 per cent).

• The ABS wrote: “Annual revenue percentage movements at the capital city, state and territory level are showing increases across Australia. Of the capital cities, Darwin (13.6 per cent) and Perth (11.0 per cent) recorded the largest annual rises. For the rest of state and territory areas, Rest of Western Australia (13.4 per cent) and Rest of South Australia (11.2 per cent) recorded the largest annual rises.”

• In terms of supermarket sales the ABS wrote:

• “Annually, Perishable goods rose 9.0 per cent, Non-perishable goods rose 7.7 per cent, and All other products rose 5.9 per cent. The higher levels of revenue reflect a continuation of more food being prepared and consumed at home due to social distancing.”

• “Annual rises were observed for a number of food categories in January 2021. The largest rises included Fresh Fish & Seafood (20.6 per cent), Cleaning Products (16.8 per cent), and Water (13.5 per cent).”

International trade – January

• The trade surplus rose by $3 billion to a record $10.1 billion in December. Australia has posted 37 successive monthly trade surpluses.

• The rolling annual surplus lifted from $73.248 billion in the year to December to a record $80.095 billion in the year to January.

• Exports of goods and services rose by 6.2 per cent (exports of goods rose by 7.6 per cent).

• Imports of goods and services fell by 2.3 per cent (goods imports fell by 2.7 per cent).

• Rural exports fell 0.2 per cent after rising 22.6 per cent in December. Exports of non-rural goods rose by 10.3 per cent. Gold exports fell by 5.1 per cent.

• Within imports, consumer imports fell by 3.3 per cent; capital goods imports fell by 0.3 per cent and intermediate goods imports fell by 2.4 per cent.

• A net services surplus of $1.046 billion was posted in January, down from a $1.213 billion surplus in December.

• Exports to China fell by 8.2 per cent to $12,446 million in January while imports from China fell 17.5 per cent to $6,739 million – the biggest monthly decline in 11 months.

• Australia’s annual exports to China rose from $145.06 billion in December to $146.52 billion in January. Exports to China are down 2.1 per cent on a year ago.

• Australia’s annual imports from China fell from $84.42 billion in December to $83.98 billion in December. Annual imports were up 6.5 per cent on a year ago.

• Australia’s rolling annual trade surplus with China rose from $60.65 billion in December to $62.54 billion in January.

• Used vehicle prices – February

• The Datium Insights – Moody’s Analytics Used Vehicle Price Index for February has been released.

• Moody’s/Datium Insights wrote: “Wholesale used-vehicle demand remains extraordinary in Australia. The Datium Insights-Moody’s Analytics Used Vehicle Price Index increased by 36.5 per cent on a year-ago basis in February. This is the highest rate of appreciation for a series that goes back to 1999. Car prices rose by 33.6 per cent, while truck prices increased by 43.7 per cent. Vehicle retention value, measured as price/MSRP, rose by 35.3 per cent compared with a year earlier, with the car component increasing by 30.6 per cent and the truck component rising by 41.2 per cent.”

What is the importance of the economic data?

• The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.

• The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

What are the implications for investors?

• The record trade surplus provides fundamental support for the Australian dollar. The big question is how high is too high for the currency? The Reserve Bank Governor may need to provide some clarity on this in a speech to be delivered next week together with observations on rising bond yields and record home prices.

Published by Craig James, Chief Economist, CommSec