The headline fall of 0.1% in the seasonally adjusted value of retail sales for December got the Rate Cut Looms mob back on the hunt this morning, only an hour or so after they were claiming the trend of data locally and from offshore had reduced the chances of a rate cut by the Reserve Bank at tomorrow’s board meeting, the first for 2012.

“Rate cut hopes fade,” a story on Fairfax websites around 10.30am blared before the ABS issued what was a mixed and slightly conflicting retail sales report for December and the December quarter.

That saw the following headline on Fairfax sites: “Retail sales record surprise Christmas slump”.

But the tenor of the first story was then supported by the ANZ job ads figures for January showing a 6% rise in job ads in newspapers and the internet, or rather on the net where job ads rose 5.6%, but dipped in newspapers. The rise reversed a string of weak or slow months in job ads.

It adds to the impression (as did surveys of manufacturing and services for January last week) that the economy is doing much better than some official surveys are suggesting. Certainly the December retail sales data from the ABS suggests more positives than negatives.

The ABS said retail trade fell in the month to a seasonally adjusted $20.885 billion, compared to a downwardly revised $20.909 billion in November. But over the December quarter, retail sales rose by 0.4% to $60.773 billion in seasonally adjusted volume terms, which is slightly weaker than the 0.5% rise for the September quarter. Market economists had been forecasting a rise of 0.3% for the month.

The ABS said the 0.1% fall in December (seasonally adjusted) followed a rise of 0.1% in November and a flat result for October, meaning retail sales were flat during the quarter. But in volume terms, sales were up 0.4% for the final three months of the year.

That indicates price deflation mentioned recently by the likes of Coles, Woolies, Harvey Norman, David Jones and others in areas such as fruit and vegetables (down 13% in the CPI data in the quarter), consumer electronics and clothing and footwear (imports costing less because of the impact of the high dollar value and price cutting in things like flat screen TVs by the likes of Sony, Samsung, etc). So consumers actually bought more goods than the value of the sales would indicate, which is surely a positive, not a negative and something the Reserve Bank’s economic analysis will crunch.

The driver of the December fall was a 0.7% drop in the seasonally adjusted sales in food retailing. But that contained the conflict. As the ABS reported: “By industry subgroup, the trend estimate rose for Supermarkets and grocery stores (0.2%) and Liquor retailing (0.7%) and fell for Other specialised food retailing (-2.3%). The seasonally adjusted estimate fell for Other specialised food retailing (-8.3%) and Supermarkets and grocery stores (-0.1%) and rose for Liquor retailing (1.1%).”

So it looks like we drank a bit more, ate roughly the same, or ate out less, and enjoyed a quiet Christmas online (judging from anecdotal report).

The ABS said the overall trend result (which attempts to smooth out month to month variations) was a rise of 0.1%. That’s hardly anything to boast about, but it’s not the end of the world as some writers and analysts would have you believe.

Adding to the downward pressure was a 1.8% fall for the previously very solid cafes, restaurants and takeaway food services. That means the value of retail sales for the month was undermined by weak sales in the food sector, including takeaways and restaurants. But remember the faster growth in sales in volume terms, which indicates price deflation was a major factor in the overall weakness in food. But it is not a major problem because other areas of retailing, including department stores and footwear and clothing retailers, did better, after having some miserable months. The ABS said:

“These falls were offset by rises in Clothing, footwear and personal accessory retailing (3.5%), Department stores (1.1%) and Household goods retailing (0.2%). Turnover was relatively unchanged in Other retailing (0.0%).

“The state which was the largest contributor to the fall was Queensland (-1.4%), followed by Western Australia (-0.7%), New South Wales (-0.2%), South Australia (-0.7%), the Northern Territory (-2.6%) and Tasmania (-0.1%). Turnover rose in Victoria (1.5%) and the Australian Capital Territory (1.8%).

“In trend terms, turnover rose 0.2% in December 2011. This follows a rise of 0.2% in November 2011 and a rise of 0.2% in October 2011. In volume terms, turnover rose 0.4% in the December quarter 2011, seasonally adjusted, following a rise of 0.5% in the September quarter 2011. In trend terms, Australian turnover rose 3.0% in December 2011 compared with December 2010.”

And finally, the ABS data doesn’t include car and petrol sales. Car sales were solid in December, and again in January. In fact the industry data on car sales, released last Friday, shows January was the best start to the year for five years. And the ABS data doesn’t measure quite a bit of the service sector (40% by some estimates) and doesn’t pick up many online sales, local and offshore.

Peter Fray

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