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Why retail spending hasn't fallen as much as the headlines suggest

Retail sales fall sharply, interpretation difficult given Black Friday/Cyber Monday, spending flat across November and December

Tapas Strickland | NAB Markets 


Bottom line: 

  • Retail sales fell a sharp -3.9% m/m in December (consensus -0.2%; NAB -1.0%), following an upwardly revised November to 1.7% m/m (from 1.4%). Interpretation is difficult given shifting seasonality associated with Black Friday/Cyber Monday, with large falls also seen in Dec 2021 ( 3.7% m/m) and Dec 2020 (-3.3% m/m). There was still a sizeable increase seen in non seasonally adjusted terms of +16.3% m/m, on par with prior pandemic Decembers, but was well short of the +19.2% m/m in original terms for Dec 2019. 
  • Taking the average of November and December in seasonally adjusted terms, over September and October, suggests retail spending in nominal terms was broadly flat at a -0.0 m/m pace, but was still 26.6% above pre-pandemic February 2020 levels. We will likely have to wait until the January figures to get a better picture of the true pace of growth, though a flattening in retail spend over November and December was seen in US data recently.



  • The key implication is that we may be starting to see the first signs that monetary tightening is starting to weigh on consumption. In the Statistician’s commentary, it was noted that the “large fall in December suggests that retail spending is slowing due to high cost-of-living pressures. Retail businesses reported that many consumers had responded to these pressures by doing more Christmas shopping in November to take advantage of heavy promotional activity and discounting as part of the Black Friday sales event” .  We will though have to wait until January’s data to confirm this contention (out on 28 February). 
  • For the RBA, today’s retail data may suggest the consumer is starting to react to real income declines and to higher rates, which could make the RBA more confident that inflation should ease despite Q4 trimmed mean inflation surprising by four-tenths (6.9% y/y vs. 6.5% as pencilled in the November SoMP). The debate at the upcoming February Board meeting is likely to be 0 vs. 25; and we think the RBA will lift rates by 25bps in February and March, before pausing thereafter. 
  • As for GDP implications, nominal retail spending in the December quarter did increase 0.9% q/q, but with an implied retail deflator of around 1.4% q/q, suggests real retail spending actually fell in Q4 (note quarterly retail figures are out on 6 February). Note retail sales only makes up around a third of household consumption, and is heavily weighted towards the goods side of the economy.        



  • By category, sharp weakness in December was seen in categories most associated with the Black Friday/Cyber Monday sales seen in November: Department Stores -14.3% m/m; Clothing, footwear and personal accessory -13.1% m/m; Households goods retailing -7.8% m/m; Other retailing -4.6% m/m. In contrast, spending on food was more positive with Food retailing +0.3% and cafes restaurants and takeaway 0.0%. Taking an average of November and December, over September and October suggests less dire spending trends during the period, though with a notable softening still in households goods and in department stores (Department stores -0.9% m/m; Households goods -0.6% m/m; Other retailing -0.4% m/m; clothing 0.0% m/m; food retailing 0.4% m/m; cafes and restaurants 0.2% m/m). 


Chart 1: Retail sales fell much more sharply than expected with a big Black Firday/Cyber Monday effect being seen as in prior years


Chart 2: Even with the fall, the level of retail sales remains incredibly high relative to pre-pandemic trends


Chart 3:  Australia’s fall in retail sales broadly seen offshore too


Chart 4: Strong falls seen in clothing, department stores and household goods, suggesting Black Friday/Cyber Monday was a major driver


Tapas Strickland, CFA is Head of Market Economics, Corporate & Institutional Banking at NAB. All prices and analysis as at 31 January 2023.

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