When you take the time to dig in to the Australian Bureau of Statistics (ABS) retail sales numbers an interesting trend emerges . Retail Sales are up not down!
Retail sales are hard to read at the best of times. Headline reporting by the ABS is percentage growth versus the previous month. Traditionally this means retail sales report a rise in December (following November) and a fall in February (following January). To a large extent the ABS headline reporting is more a measure of retail seasonality than underlying growth.
To understand underlying growth a much more useful comparison is with sales in the same month in the previous year. This comparison takes out seasonal effects. (notwithstanding the timing of special events and holidays like Easter).
Year on year (YOY) comparisons are easy to construct from the ABS data but in recent months they have fluctuated wildly due to the effects of panic buying, lock downs and then easing of shopping restrictions. In March, with panic buying in full swing , YOY sales were up (+9.4%), in April with lockdowns in full force they were down (-8.5%) and in May as restrictions eased they were up again (5.5%).
So how is it possible to determine the underlying sales trend with such wild fluctuations in month to month YOY sales? A simple way is to extend the YOY comparison period to a rolling three months. This smooths out the effects of the events disrupting month to month comparisons.
When sales are compared YOY on a rolling 3-month basis some interesting trends emerge. In the three months to March retail sales rose 5.7%. This is probably not surprising as it reflects fairly normal trading conditions in January (notwithstanding bushfire effects in some areas) and some panic buying from the end of February. In the three months to April sales rose a more modest 2.0% and the three months to May 2.1%.
The May figure is the most interesting. It incorporates the biggest month of panic buying (March), the harshest month of lockdown (April) and the reopening(May). As such it is probably our best indicator of the underlying trend and it’s up!
As usual, the overall number is not an indication of the health of individual categories . The big winners in the 3 months to May YOY are Food (+15.2%) and Household Goods (+16.7%) while the biggest losers are Clothing, Footwear and Accessories (-36.5%) and Café , Restaurants and Takeaway (-35.7%).
In turn, category numbers never tell the individual stories of businesses who have been able to thrive despite big declines in their categories (and vice versa) nor do they reveal how much profit is being made.
Historical sales numbers don’t predict the future but it is interesting to speculate. Retail sales normally correlate quite closely with rises and falls in GDP and have been steadily rising since the last economic recession of 1991. GDP fell .3% in the March quarter and is predicted to have fallen more in the June quarter. This would normally mean that retail sales should be falling but so far this is not the case. Could it be that overall retail spend is benefitting from the inability of consumers to spend in other discretionary areas like travel and entertainment? What will happen to retail sales as these industries begin to open up in future months? Time will tell, but for now the underlying trend of retail sales is up not down.