Consumer confidence rose 1.7 per cent last week as omicron cases remained on a downward trend across Australia although Victoria and Queensland bucked the trend and recorded a decline.
Although overall retail spending dropped 4.4 per cent, the underlying data suggests that unlike previous waves of COVID, households are learning to live with the virus, and there has been an accumulation of excess savings, buoying the market.
The low unemployment rate is also expected to put pressure on wages growth, and although it may take a while longer for consumers to have the confidence to spend those savings, it indicates there should be a relatively rapid recovery in spending as restrictions ease further.
Sarah Hunter, senior economist and partner in DTL’s Economics & Tax Centre for KPMG said moving through the rest of 2022 and into 2023, the pace of growth in retail spending is set to ease (notwithstanding month-to-month volatility) as households switch their spending back towards services, in particular travel and tourism.
“This process had begun in the June quarter 2021 but was paused by Delta and now Omicron,” she said. “Furthermore, household disposable income will face cyclical headwinds from rising interest rates and more modest increases in employment (resident employment has now recovered to pre-pandemic levels), which will dampen growth across all categories of consumer spending.”
According to data from ANZ, the drop in retail sales in December is merely a reversion from the very strong November result (+7.3 per cent m/m), caused by Black Friday and the reopening of Melbourne’s retailers. Retail sales were up 2.6 per cent in December compared with October.
The latest report also revealed that lending jumped again in December (+4.4 per cent m/m) and ANZ economists warned there is a growing risk that the resurgence of lending could continue in the first half of 2022, as low rates of unemployment and likely stronger savings rates during omicron support borrowing. If lending continues at this pace, APRA may consider more measures to slow it.
Australian Retailers Association (ARA) chief executive Paul Zahra said whilst the December results provide a welcome boost after a difficult 2021, year-on-year growth has slowed and the numbers reveal the beginnings of a slowdown as the omicron wave began to impact businesses.
The December ABS figures show Victoria leading the states, with sales up 6.5 per cent compared to the previous year, followed by Western Australia (up 5.3 per cent), NSW (up 5.2 per cent) and Queensland (up 3.7 per cent). Spending on retail goods remains elevated compared to December 2020 for all retail categories except for department stores, down 9.0 per cent. Cafes, restaurants and takeaway food had the highest year-on-year increase at 6.8 per cent followed by clothing, footwear, and personal accessories with sales up 5.8 per cent and household goods at 5.1 per cent in December compared to the same time in the previous year.
Online sales represented 12 per cent of total retailing in December, with online sales continuing to normalise as Australians returned to physical store shopping.
Mr Zahra said the robust Christmas results provide a lifeline for struggling retailers, but all signs point to a dismal January as omicron challenges continue to create a shadow lockdown.
“Christmas sales are when most discretionary retailers make up to two thirds of their annual profits. This solid December performance, following a strong November, will help replenish cash reserves for retailers affected by a year of restrictions and lockdowns,” he said.
“The outlook for January and February is not as positive for retail with Omicron impacts causing confidence levels to drop to their lowest level in 30 years. Foot traffic has slowed significantly and ongoing staffing shortages, supply chain delays and pricing increases are creating another dire set of trading conditions for retailers this year.”
Mr Zahra said some retailers are calling the opening months of 2022 the worst part of the pandemic – a shadow lockdown without the same levels of government financial support.
“Whilst we welcome the state and territory government business supports that are starting to come in, our reports tell us January was a devastating month for retail, hospitality and tourism businesses and we believe much more support will be required. Many small businesses are struggling to keep their doors open with staffing shortages and we are calling on federal and state and territory governments to step up to keep these businesses alive,” he said.
