Grogonomics
Business (Australia)

The latest retail trade figures showed some improvement – but they’re nothing to celebrate

The retail trade data released last week was just the latest disappointment in the search for positive signs of household spending. While the figures showed some slightly better signs, overall they merely confirmed that households have shut their wallets as the lack of real wage growth continues.
One of the things about underperforming sectors of the economy is how quickly previously weak figures are treated as good signs.
The latest retail trade figures released by the Bureau of Statistics showed that in trend terms retail spending in June was 3.1% above where it was 12 months earlier. This was the first time for a year that the annual growth was above 3% and well above the nadir of 1.8% growth in October last year.
So yes, good news. But come on, let’s not get too excited. Three per cent spending growth is bloody awful on an historical basis:
One of the factors with retail trade data we need to consider is inflation. While most economic data we look at in the GDP figures is in real terms, retail trade figures are nominal – ie they count the actual dollars spent.
This means that they are affected by the current low level of inflation.
And while the cost of some of the more essential items of household expenditure are rising above inflation levels, generally that is not the case with the things we buy in retail shops.
Overall, however, the price of retail trade goods and services rose just 0.2% in the past 12 months – mostly due to large falls in the cost of items in the household goods group (-2.9%), the clothing and footwear group (-2.3%) and the cost of goods in departments stores (-3%).
What this means is that a large proportion of the growth in retail spending has been on food. This is not unusual given we spend about 40% of monthly retail spending on food, but in the past 12 months food spending accounted for 54% of the growth:
The only group where we seem to have taken advantage of the fall in prices and spent more than normal was on clothing and footwear. All other groups saw a smaller increase in spending than you would expect given how much we normally spend on them each month.
So, to an extent, you can understand why the growth of retail trade is so low. If the price of items was growing at 3%, then even if we all just bought the same amount of goods as we did a year ago, the retail trade would have grown by 3%. With the price of goods barely increasing it means any growth in retail trade has to come from an increase in the amount of things we buy, not from things costing more.
The good thing about the latest retail trade data is that it also gives us the latest quarterly figures for volume of trade – ie growth that takes into account inflation.
But these figures show that the low level of retail trade is not due to just weak inflation, but also because households are not increasing their spending anywhere near the level they used to.
The annual growth of 2.5% is also pretty much bang on the average since the GFC hit in 2008, but it remains well below the 4.1% average growth from 1984 to 2008.
And this does not bode well for household consumption boosting the GDP figures out next month.
While retail trade is not a perfect match for household consumption it is a pretty good guide. The flatness of retail trade volume also means that any lift from household consumption will need to come from areas such as insurance, health, rent and utilities spending:
There is not likely to be any lift from the other major non-retail area of new car purchases.
The latest new car sales figures also out last week via the federal chamber of automotive industries (the ABS no longer calculate vehicle sales figures) showed that over the past 12 months new car sales fell 7.8%.
It is just more evidence that despite pretty solid employment growth figures the lack of income growth remains a major factor for Australian households.
We’re not really taking advantage of low inflation to spend more because even with that low inflation our incomes are barely keeping pace (and for many not) with rises in the cost of living. As such we’re spending more on essentials such as food, and holding off on making a major new purchase like a new car.
It highlights how, more than ever – both in political and economic terms – the major issue is wages growth. Until our wages start growing at a faster pace, we will remain stuck with economic growth much lower than we were once used to.
  • Greg Jericho is a Guardian Australia columnist