Australian Retail Sales: February 2023 - Deceleration

About the author:

Alexander Mees
Author name:
By Alexander Mees
Job title:
Co-Head of Research and Senior Analyst
Date posted:
29 March 2023, 7:00 AM
Sectors Covered:
Gaming and Retail

  • Australian retail sales rose by +0.2% month-on-month (m/m), slightly exceeding the consensus forecast of a +0.1% rise. There was a broad range of consensus estimates, from a decline of -1.2% to an increase of +1.3%. For the second month in a row, the best m/m growth was in Department Stores and Clothing & Footwear. On a year-on-year (y/y) basis, retail sales are rising roughly in line with CPI, up 6.4% in February with Eating Out leading the way.
  • February’s rate of growth is less than it was in January, when the m/m increase was +1.8% (after a soft December) and y/y growth was +7.5%. The slowdown appears to be broadly consistent with a trajectory of gradual deceleration in the face of rising costs of living, rather than the abrupt cliff edge that many investors have been fearing. We do continue to expect turbulence ahead, however, as the cumulative effect of ten consecutive rate hikes (so far) by the RBA hits those whose fixed rate mortgage is due to expire in the months ahead.

Retail sales rose 0.2% m/m in February

Retail sales were A$35.14bn in February, 0.2% higher than January’s A$35.07bn and -2.0% below the record monthly high of A$35.84m in November 2022. All categories except ‘Other Retailing’, which includes books and pharmaceuticals, grew positively on their sales performance in February.

The strongest m/m growth, for a second consecutive month, was Department Stores (up +1.0%), with Clothing & Footwear coming in second (up +0.6%).

This suggests that consumers are not yet seeking to economise on what have historically been among the most discretionary types of purchase.

Compared to February last year, sales are up broadly in line with inflation

Retail sales were up +6.4% y/y. This is broadly in line with where CPI is likely to come in for February (the consensus forecast is 6.7%). Although there are variations by category, we can conclude that there has been no meaningful reduction in purchase volumes as a reaction to increased costs of living.

On a y/y basis, the fastest pace of growth (for the fifth month in succession) was Eating Out, as consumer behaviour around socialising continues to normalise post-lockdown.

This was followed by Food & Drink (groceries), which saw 7.9% sales growth, the highest monthly growth rate in this category in over two years.

It will almost certainly get more challenging

The rate of inflation has been elevated for more than 12 months. This, and the effect of successive rate rises by the RBA, is eating into the disposable income of Australians.

The low rate of unemployment and positive traction in wages mean a consumer shock has so far been avoided.

The much heralded fixed rate mortgage cliff is likely to become more and more evident as 2023 goes on and we continue to expect consumers to rein in expenditure later in the year to fund increased costs of mortgage servicing and other essentials.

Figure 1: Retail sales (A$m)

Growth stocks have had a choppy ride since the onset of the pandemicSource: ABS.

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