‘Retail recession’ looms when JobKeeper ends, economist warns

A retail recession is on the cards when JobKeeper ends, with new spending data pointing to shy shoppers and weak sales growth.

Victorians drove a 2.5 per cent increase in retail trade volumes in the December quarter, but sales went backwards everywhere else across the nation.

That’s according to ABS figures published on Friday, which confirmed retailers had a lacklustre Christmas after a mammoth November.

December sales fell 4.1 per cent, an adjustment on earlier estimates.

Lower spending was felt in all major categories except cafes and restaurants, which enjoyed a 3.2 per cent bump in December as brunch-goers shrugged off lockdowns in NSW.

Household goods (down 8.3 per cent) and fashion (down 9.4 per cent) were particularly weak in December, although Indeed APAC economist Callam Pickering said that’s expected after a bumper November.

The real concern, Mr Pickering said, is a considerable slowdown in retail trade over 2021, which could even spark a retail recession.

“Spending in recent months entirely reflects the re-opening of Victoria … there is no retail momentum in the rest of Australia,” he said.

“[We] cannot discount the possibility of a retail recession given the combination of low wage growth, low population growth and the diminished impact of Victoria’s economic re-opening.”

“The current rate of annual growth [6.4 per cent] is also unsustainable, particularly once JobKeeper and JobSeeker [supplements] are removed.”

There are already signs Victoria’s retail renaissance is winding down, with turnover decreasing 6.8 per cent across the state in December.

Monthly retail spending also fell 4.9 per cent in NSW and 1.8 per cent across Queensland, leaving the Northern Territory (up 1.1 per cent) as the only jurisdiction to record a positive result.

A return to form?

BIS Oxford chief economist Sarah Hunter was more optimistic, saying consumer spending is returning to form after COVID-19.

“Spending patterns are beginning to return to normal as the immediate impact of lockdown and relaxation fade,” Dr Hunter said in a statement.

Clothing, footwear and personal accessories volumes increased 16 per cent over the December quarter, while Department Stores enjoyed a 11 per cent rise.

Cafes, restaurants and takeaway volumes shot up 11.3 per cent, but household goods fell 0.4 per cent after a lockdown induced boom.

Dr Hunter said these spending levels were unlikely to last though, pointing to a bumpy outlook for 2021.

“Food and household goods will … likely see further declines, though household goods will see some support from the rapid rebound in the housing market,” Dr Hunter said.

“Spending on clothing and in department stores is also likely to fall back, with the rebound in the December quarter taking both categories well ahead of pre-COVID levels.”

The good news: Trade volumes rise annually

The good news is trade volumes were up 6.4 per cent over the year, in what Commonwealth Bank senior economist Kristina Clifton said was a strong result against the pandemic.

“This is a strong rate of growth and well above the growth rates achieved pre‑COVID‑19,” Ms Clifton said in a note.

“It’s clear that many parts of the retail sector have benefited from the shift away from spending on services and towards goods that we have seen over the pandemic.”

Ms Clinfton expected household spending to continue rising in 2021, supported by the ongoing closure of international borders, which is forcing more consumers to spend money locally.

This is a strong rate of growth and well above the growth rates achieved pre‑COVID‑19. It’s clear that many parts of the retail sector have benefited from the shift away from spending on services and towards goods that we have seen over the pandemic.

“A large pool of savings, which we estimate at around an additional $A125 billion thanks to government stimulus over the pandemic, will also support consumer spending this year,” she said.

The post ‘Retail recession’ looms when JobKeeper ends, economist warns appeared first on The New Daily.

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