Investing.com - In December, shoppers grappling with the cost of living pressures largely avoided Christmas and Boxing Day sales, indicating an economy that's slowing down due to high-interest rates.
Retail spending in December fell by 2.7%, as reported by the Australian Bureau of Statistics on Tuesday, a more substantial decline than the 2% economists had predicted. This larger-than-anticipated decrease followed a 2% surge in turnover in November when shoppers moved their spending forward to take advantage of the Black Friday and Cyber Monday sales.
In December, according to seasonally adjusted figures, spending dropped to A$35.2bn, down from $36.1bn in the previous month. This shift in spending patterns reflects the growing appeal of Black Friday sales and the impact of cost of living pressures.
Discretionary spending saw a significant decrease, leading to a weaker monthly result. Household goods retailing slid by 8.5%, department store spending dropped by 8.1%, and clothing and footwear purchases eased by 5.1%. Food retailing was the only sector to see an increase, with turnover edging 0.1% higher.
Retailers such as KMD Brands and Harvey Norman had anticipated a quieter Christmas period following the robust Black Friday sales. However, Super Retail Group experienced a strong sales period that pushed the company's revenue past $2bn.
On Wednesday, new inflation figures are expected to show price growth moderated to 4.2% in the December quarter, down from 5.4% in the previous quarter. This slowing spending growth and moderating price pressures are consistent with the Australian economy achieving a soft landing.
These latest spending figures keep the Reserve Bank on track to hold rates steady at its February interest rate decision, scheduled for February 6, and consider cuts later in the year. Bond markets are pricing in two rate cuts before the end of the year, bringing interest rates to 3.85%.
The December retail slump is almost unprecedented. The drop is the worst seasonally adjusted monthly result in the four-decade history of the retail sales data, apart from two months in 2020 due to COVID and July 2000 due to the introduction of the GST.
This weak result will heavily impact economic growth, as measured by GDP. With household consumption making up over half the economy, this raises the real risk of a negative quarter of GDP, increasing the possibility of a technical recession. Australia's strong population growth coupled with the level of inflation over the past year makes the annual retail sales growth of just 0.8% extremely poor.