Retail spending rose in February
¾Retail trade: Early estimates show that retail trade rose by 0.4 per cent in February.
Retail trade data is important for consumer-focused companies.
What does it all mean?
• It was still relatively early days in the coronavirus crisis in February. At that time the main impact on the Australian economy was from a drop in tourist and foreign student numbers, especially from China. And that impact has been reflected in the retail trade estimates. Still, overall retail trade was up, rather than down. So that is at least some encouragement.
• The March retail trade estimates (data released in week beginning April 20) will again show higher spending on food, especially staples with a longer shelf life. Anecdotally food spending in the month was even higher than recorded in December – seasonally the biggest month of the year for food retailers. Spending at cafes and restaurants is likely to be lower but there will be some substitution of home delivery and other takeaway demand for in-premises consumption.
• Other categories of spending are harder to estimate. For instance, Aussies may have lifted spending on some electrical/computing items like monitors, modems, power boards as they prepared to work from home.
• While Aussies have been spending up on grocery-type items, boosting home inventories, there may not necessarily be a drop off in food spending over April and May. It is likely that Aussies will maintain higher home inventories for an extended period.
What do the figures show?
Retail trade rose by 0.4 per cent in seasonally adjusted terms in February to stand 1.7 per cent higher than a year ago.
The Australian Bureau of Statistics (ABS) said:
“The rise in seasonally adjusted terms in February 2020 was largely driven by the Food Retailing sub industry with Supermarkets recording increases in demand.
Offsetting weakness was seen in the Clothing, footwear and personal accessory retailing sub industry where businesses reported adverse impacts from COVID-19.
Weakness was also seen in ‘Other’ retailing including duty free stores and luxury goods retailing where businesses that are heavily reliant on overseas visitors reported impacts from COVID-19.
Other than Supermarkets, retailers with no specific links to tourism were largely unaffected in February 2020.”
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?
• Non-discretionary retailers like Woolworths, Coles and Metcash will continue to attract interest from investors over coming months. Aussies have been stocking up on groceries on the expectation that they will be spending more time in their homes and going out less.
• The Reserve Bank and Federal Government will closely dissect a raft of indicators over coming weeks so that they can better support small and medium-sized businesses in the challenging conditions.
Published by Craig James, Chief Economist, CommSec