Australia | Jan 13 2020
Early data signals the critical Christmas shopping season of 2019 was subdued and, given the devastation from Australia's widespread bushfires, weakness is likely to continue into January.
-Strong Black Friday promotions likely behind weaker December retail sales figures
-Bushfires likely to materially affect early January household expenditure
-Flow-on effects of fires could be significant for the banks
By Eva Brocklehurst
As feared, the peak Christmas shopping season of 2019 is turning out to have been much weaker versus the past few years. ANZ Bank card payments data signal sales for the period are down just over -5%. Christmas shopping accounted for a smaller share of December non-food retail expenditure, particularly in NSW, Queensland and Western Australia.
The analysts suspect strong sales in November's Black Friday promotion were likely behind the comparable decline in December figures. Footwear and accessories were particularly weak, yet one of the strongest categories in November. Department store and clothing sales, which also experienced strong growth in November, eased significantly in December.
That said, the analysts acknowledge bushfires in December and smoke haze may have contributed, particularly for categories where purchases could be delayed. Compared with 2018, 2019 was weaker in every state and territory, with the ACT being the exception.
Mining states i.e. South Australia, Queensland, Western Australia and Northern Territory, were particularly soft. While the "Christmas" effect on retailing has been easing for several years, the ANZ data point to the soft patch in 2019 being particularly stark.
For example, in NSW non-food retail accounted for 37.7% of sales during the Christmas shopping season in 2019, falling from 39.4% of sales during the 2018 season. All categories in non-food sales, with the exception of electrical, were weaker.
ANZ Bank analysts also suspect the bushfires will materially affect early January household expenditure, with a dip in the ANZ/Roy Morgan Australian consumer confidence figures for the first weekend of the month signalling a notable impact.
Aussie Banks And Bushfires Impact
While natural disasters such as cyclones, floods, drought and earthquakes typically result in higher general insurance claims as well as additional provisions by the major banks, Morgan Stanley does not expect the impact of the bushfires will be material for earnings.
That said, a second order effect on near-term economic activity and interest rates presents downside risks.
The broker's assessment is that, while the fire impact is substantial for local communities, and the duration and geographic spread is greater than usual, the direct financial cost is likely to be less than some other natural disasters that have occurred in areas with larger populations.
Nevertheless, the flow-on effects may be more important for the banks. Morgan Stanley also notes early evidence of disruptions to retail sales, while further cuts to official interest rates would add to earnings risk.
As rates are now close to zero on around $400bn of Australian deposits, more official cash rate reductions by the Reserve Bank would accelerate the squeeze on deposit spreads as well as margin contraction, point out the analysts.
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