The Australian Bureau of Statistics released figures for retail trade last week showing that seasonally adjusted retail turnover fell by 0.3 percent in January 2020 after a fall of 0.7 percent in December 2019. Department stores were hit particularly hard with a reduction in turnover of 2.2 percent in seasonally adjusted terms. Bushfires were partly to blame and while the Coronavirus had no impact, the ABS warned that it expected that COVID-19 would impact aggregate retail trade estimates in the coming months.
With natural disasters, global health scares and a downturn in turnover, retailers are probably allowed to be concerned. Australian’s aren’t buying like they used to, and this is not just a bushfire thing. On a per capita basis, the percentage change in retail turnover has declined for the past five quarters – a more sustained decline in turnover than seen during either the GFC in 2008-9 or the recession ‘we had to have’ in the early 1990s.
Households are saving more, so is the Government
The Government is suggesting that the main concern about the state of the economy is on the supply side of the economy rather than one of demand and this may well be the case. Whatever the underlying reason, households are starting to save more. ABS national accounts data shows that household net saving ratio has turned upward over the past year compared with the ratio being flat or declining since 2012. Coming at the same time as the Government moving towards a budget surplus (another form of saving), it should not be a surprise that the amount of money available to be spent in the retail sector is in decline, at least on a per capita basis.
It is clear that retail trade is currently being supported by population growth – but this growth is going to take a hit as the Coronavirus crisis plays out. A reduction in temporary migrants, in particular driven by reductions in overseas student numbers (a potential $8 billion hit to the economy according to the RBA), as well as the impact of travel restrictions generally is going to continue impacting the retail sector in 2020.