Record lift in retail trade in September quarter
Retail trade

Retail trade: Retail trade fell by 1.1 per cent in September (survey forecast: -1.5 per cent).

In real (inflation-adjusted) terms, retail trade rose by 6.5 per cent in the September quarter (survey forecast: +6.0 per cent).

Retail prices: Prices at retail stores rose 0.5 per cent in the September quarter to be up 4 per cent on the year.

Retail trade data is important for consumer-focussed companies.

What does it all mean?

• Why does the Reserve Bank believe that growth returned in the September quarter (perhaps ending the recession)? A lot has to do with consumer spending. In real terms (excluding inflation) retail trade rose by a record 6.5 per cent in the September quarter.

• Clearly the retail spending figures have been remarkably volatile over 2020. But the boost to spending power from fiscal and monetary stimulus has proved the difference, offsetting declines in employment and scant growth in wages.

• The Reserve Bank is hoping to key off the improving economic momentum by the recent package of monetary policy measures.

What do the figures show?

Retail trade – September 2020

• Retail trade: Retail trade fell by 1.1 per cent in September. The annual growth rate eased from 7.1 per cent to 5.6 per cent.

• Non-food retailing fell by 0.8 per cent in September. The annual rate fell from 2.0 per cent to 1.0 per cent.

• At a subgroup level, spending rose most in September: Newspapers & book retailing (up 13.7 per cent); Cafes & restaurants (up 4.3 per cent); and takeaway food (up 2.7 per cent).

• At a sub-group level, spending fell most in September: Electrical and electronic goods retailing (down 7.4 per cent) Other retail n.e.c. (flowers, antiques, online) (down 4.8 per cent); and Other specialised food (butchers, seafood, bread etc) (down 3.5 per cent)

• Across states/territories in September: NSW (down 0.9 per cent); Victoria (down 0.4 per cent); Queensland (down 1.2 per cent); South Australia (down 2.9 per cent); Western Australia (down 1.7 per cent); Tasmania (down 2.0 per cent); Northern Territory (up 4.3 per cent); ACT (down 2.4 per cent).

Retail trade – September quarter 2020

• In real (inflation-adjusted) terms, retail trade rose by a record 6.5 per cent in the September quarter after a 3.5 per cent fall in the June quarter. After falling 2.1 per cent in the year to the June quarter, spending rose 4.2 per cent in the year to the September quarter.

• In nominal terms (includes inflation), retail trade rose by 7.0 per cent in the September quarter.

• Prices across retailers rose by 0.5 per cent in the September quarter. Annual growth of retail prices rose from 3.8 per cent to 4.0 per cent.

• At an industry level, real sales in the September quarter: Clothing, footwear and personal accessory (up 35.5 per cent); Cafes & restaurants (up 28.1 per cent); “Other” retailing (up 3.5 per cent); Food (up 3.2 per cent); Department stores (up 0.2 per cent); Household goods (down 0.2 per cent).

ABS analysis of large & small business

• “Monthly estimates of retail turnover are compiled from a sample of around 3,200 retail businesses. This sample includes around 500 large businesses, referred to as Completely Enumerated (CE’d Units), and around 2,700 smaller businesses, referred to as sample businesses.

• Large businesses made up 73.6% of total retail sales during the COVID-19 period (March to September 2020). In the same period in 2019 they made up 70.1% of total sales.

• There has been a marked difference in the through-the-year performance of large and small businesses during the COVID-19 period.

• With the exception of April 2020, large businesses have recorded through-the-year growth in every month since the beginning of the pandemic (March 2020). Large businesses have recorded average through-the-year growth of 10.9% since March 2020, up from 5.0% over the previous six months.

• On the other hand, sample businesses have only had one month (July 2020) of through-the-year growth since the beginning of the pandemic. Small businesses have recorded an average through-the-year fall in sales of 6.7% since March 2020, down from -1.6% over the previous six months.

• Three reasons why larger businesses have performed better during the COVID-19 period are:

Generally, larger businesses were in a better position to meet the increase in demand for online sales.

There are numerous smaller businesses in the Cafes, restaurants and takeaway food services industry, which have been hit the hardest by the COVID-19 outbreak and restrictions. This is the only industry where smaller businesses make up the majority of sales for an industry.

In some industries where there was a large increase in sales, larger businesses captured the vast majority of these extra sales. This was especially the case in Household goods.”

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.

What are the implications for investors?

• Fiscal policy stimulus has been cranked up by the maximum volume. So has monetary policy. The hope is that the stimulus causes businesses to employ, invest and spend. And it is a case of so far, so good. But much depends on continuing to suppress the virus. And there are still a host of risks in the global economy also.

• Low interest rates, tax cuts, more job vacancies, improving job security, rising confidence and wage subsidy schemes will all continue to support consumer spending.

Published by Craig James, Chief Economist, CommSec