Surprisingly strong retail spending defies Omicron. Sarah Hunter, Senior Economist, responds to ABS retail figures for January
Retail turnover was surprisingly strong in January, with spending rising 1.8 percent month on month despite the spread of Omicron through most states. But the impact of restrictions and guidance to limit social contact is clear in the breakdown. Spending on food rose 2.2 percent, while cafes, restaurants and takeaways and clothing (which is highly correlated with spending on consumer services) both posted falls (0.8 percent and 1 percent m/m respectively).
Across the states Western Australia led the way, helped by very low case numbers and limited restrictions on activity. Momentum on the east coast was generally weaker but still positive, with NSW and Victoria now recording turnover well beyond their pre-Delta peak – further signs that the economy has now learnt to live with COVID.
Easing of restrictions in many states through February and into March has enabled a further increase in household spending, with bank card spending data reporting steady rises in activity, despite consumer confidence being weighed down by rising fuel costs and the ongoing geopolitical situation in Europe.
Some of this spending will flow through to retail turnover, particularly in cafes and restaurants, but the pivot back to services spending more broadly will put a dampener on retail through the rest of 2022. The food and household goods categories are most exposed to this shift and are likely to underperform.
The data confirms the RBA’s assessment that the recovery is well-entrenched, but it’s unlikely to sway their view on the timing for rate rises; this will be most-heavily influenced by the trajectory for wages and price inflation.