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Economics & Markets

Despite a slow January, growth in retail spend should continue to fuel the consumer recovery

By Diana Mousina
Economist - Investment Strategy & Dynamic Markets Sydney, Australia

January’s retail sales figures rose by 0.5% , well short of prior consensus, which had anticipated a 2% lift. Retail spending is still up more than 10% compared to a year ago, but a slowdown at this point would have broader implications given the extent to which it has underpinned Australia’s economic recovery to this point. In this context, some might be tempted to take this result as a cause for concern, as it comes off the back of a 4.1% fall in December, but it’s more likely that it represents a continued trend to growth rather than the beginning of a slow-down.

Here are five reasons for optimism:

1. November’s surge is still reverberating
Retail turnover jumped 7.1% in November 2020 on the back of a strong performance in the Black Friday/Cyber Monday sales. These sales days are becoming more of a phenomenon with each passing year, and given the boom in e-commerce through 2021, it’s not surprising that the pace of growth increased. Consumers appeared to be bringing forward a lot of the Christmas spending to November 2020, and until this trend becomes more settled into the seasonal adjustments, we’ll probably continue to see these kind of November/January disparities.

Source: ABS, AMP Capital
Source: ABS, AMP Capital

2. Lockdown effects should be temporary
The effects of recent lockdowns will continue to flow through at least to the February retail spending figures, but judging from the evidence here, any effects should be short lasting. Retail spending in Queensland, for example, fell through January as that state went into lockdown but rose in NSW as restrictions there were eased progressively through the month. As the vaccine rollout continues, lockdowns should (hopefully) become less common and consequently have less of an impact on retail spending.

3. Other indicators are strong
Consumer confidence has been running at levels near ten-year highs since December 2020, over 14% above its pre-COVID level.1 Credit card data also shows retail spending holding up, and other parts of the economy (particularly the housing market) reflect a largely positive momentum and buoyant consumer outlook.

4. Household finances remain stable
Changes to household finances over the past year have supported growth in retail spending. Incomes actually rose through the crisis, thanks to sizeable government assistance programs, and household savings rates rose to 12% in the December quarter of 2020 - around two times from the ‘normal’ pre-COVID levels than in the corresponding period in the previous year. The buffer that many households have developed should help sustain them as government support continues to be withdrawn through 2021.

5. Consumption will continue to be redirected from tourism
Prior to the pandemic, Australians spent nearly $65 billion2 a year on overseas travel. With this spending opportunity cut off, these funds will continue to be directed to domestic tourism and other forms of consumption, including retail spending. It is worth noting that increased domestic tourism spend should also boost retail spend, as a larger proportion of purchases associated with travel will be spent locally (domestic tourism is worth just over 4% of GDP, well above the 1.3% that international tourists spend in Australia).

On these grounds, our expectation is that despite these fluctuations, retail sales will continue to contribute to consumer spending growth over the next six months, which should recover to pre-COVID levels over that time. There are still slight dangers to these prospects, not least of which is potential weakness in the labour market following the withdrawal of the JobKeeper program and if soft wages growth continues over the coming years.

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Diana Mousina, Economist - Investment Strategy & Dynamic Markets
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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.


This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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