Total retail turnover was $35.19 billion, down in seasonally adjusted terms from $36.15 million posted in November, data from the Australian Bureau of Statistics (ABS) revealed today. 

The weaker sales in December confirm the ongoing trend ABS noted in the seasonal spending patterns of Australians which revolve around discount shopping as a means to beat the rising cost of living.

“This shift in spending from December to November reflects the growing popularity of Black Friday sales and the impact of cost-of-living pressures, with consumers seeking out bargains and taking advantage of discounts in November,” ABS head of retail statistics Ben Dorber said. 

This month’s read was a sharp reversal of the strong retail trade figures in November when Black Friday sales lifted turnover by 1.6% (revised down from 2%) on seasonally adjusted terms. 

“The December release included larger than usual revisions to the data, as the seasonal adjustment process attempts to capture this change in behaviour,” ANZ economist Madeline Dunk noted.

“Despite this, recent years have shown a consistent pattern of strong November growth followed by weak December results.”

According to the ABS, the fall in discretionary spending drove the decline in December retail which stumbled more sharply than the 1.7% drop the market predicted.

Sales fell in all non-food industries that had been boosted by Black Friday sales, with household goods leading the December drops with an 8.5% decline following strong sales in November.

Shoppers also cut back their spending on department stores (down 8.1%), clothing, footwear, and personal accessories (down 5.7%), and other retail goods (down 1.1%) in December after the previous month’s sales promotions ended.

“Retailers told us that trading conditions were slow in early December following the success of Black Friday before picking up again in the lead-up to Christmas and Boxing Day sales where discounting activity returned,” Mr Dorber said.

In food-related industries, turnover fell in cafes, restaurants, and takeaway food services (down 1.1%) while food retailing (up 0.1%) rose.

Aussies spend less in 2023

Taking out the volatile movements in the run-up to Christmas, retail sales actually saw a soft 0.1% month-on-month uptick in December.

Despite this, economists said the turnover figures indicate weak spending relative to easing inflation and rapid population growth. 

“Retail trade was just 0.8% higher over the year to December. The annual rate is the softest outside of pandemic lockdowns since July 2022,” CBA economist Stephen Wu said. 

“Taking a longer view, retail momentum for the entirety of 2023 was soft.”

ANZ expects the weak retail sales last year to continue throughout the first half of 2024 before bouncing back under several conditions.

“As we move into the second half of the year, easing inflation, fiscal support, tax cuts, and November rate cut should support household incomes and help lift spending,” ANZ senior economist Adelaide Timbrell said.

What will be the RBA’s next move?

The chances that the RBA board will cut or, more likely, keep interest rates steady as major economists forecast, have increased following the latest release of retail sales figures. 

The board hiked interest rates until its current peak of 4.35% to slow down spending and bring prices and inflation down to its 2-3% target band. 

The RBA board’s next policy meeting is scheduled for 5-6 February.

AMP chief economist Dr Shane Oliver has one of the earliest forecasts of a rate cut (mid year).

"The softness in retail sales coming on the back of weak December jobs data and falling inflation data for October and November are consistent with the RBA leaving rates on hold at its meeting next week and we continue to see it starting to cut rates from around mid-year," Dr Oliver said.

Softening economic data indicates that the cash rate could have peaked and is on its way down. 

However, a lot still hinges on the December consumer price index (CPI) the ABS is scheduled to release on Wednesday.

“Tomorrow’s Q4 CPI will be important in interpreting how much of the move in Q4 was driven by price changes as opposed to volume changes,” NAB head of market economics Tapas Strickland said. 

For Westpac’s Tim Riddell, there are two possible scenarios depending on the December inflation data:

“A weaker print (0.7% core) would be seen as placing Australia more in line with global trends and hence remove the residual chance of a further RBA hike," the economist noted.

“On the other hand, a stronger print (1%) would increase the risks of a further ‘insurance-style’ rate hike.”

“For now, the market continues to ascribe only a small chance of a rate cut in the first half of 2024 but expects an easing cycle to begin in September and has 1.5 rate cuts factored in by year-end,” Mr Riddell said. 

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