Retail sales plunge puts economy in serious recession territory

Australia’s retail sales slumped in December. Crowds at the Boxing Day sales at DFO Brisbane. Picture: Nigel Hallett

The evidence is now undeniable. Consumer spending has cratered, and inflation has also fallen sharply, which will be confirmed by the ABS’s December quarter CPI inflation data Wednesday.

The Reserve Bank really should be considering – indeed, delivering – a rate cut at its first meeting for the year next week.

It almost certainly won’t, as that would be an all-too obvious, all-too public, all-too embarrassing, admission that its November Cup Day hike was, as I wrote at the time, at least unnecessary and arguably a mistake.

It is impossible to overstate how dreadful the latest – December – retail sales numbers from the ABS were.

In a pre-digital, pre-Covid world, they would have sparked universal commentary that the economy had plunged into recession.

Yes, the monthly numbers have been badly distorted by the new Black Friday-Cyber Monday phenomenon.

So sales in November surged 1.6 per cent and then slumped 2.7 per cent in December, even after the seasonal adjustment which is supposed to try to iron-out these one-off impacts like Black Friday.

But soberingly, ominously, while yes, the December slump was significantly driven by consumer spending having been drawn forward into November, let’s not forget it still included what should have been a pre-Christmas spend-up.

Yet spending fell 2.7 per cent in the month. Then add on two big factors that make the fall

dramatically – seriously recessionary – worse.

First, inflation running around 5 per cent for the year. That points to a real fall in spending for the month of something like 7-8 per cent.

Then add on our spectacular population growth, running at 2 per cent-plus. That takes the real per capita fall to something like a numbing 10 per cent.

Even accounting for all the shifts in consumer spending because of our move online, that’s serious recession territory.

Even the full-year figures, which better iron out all these disruptions, are sobering.

Over the December year retail sales rose just 0.8 per cent.

Bring in inflation and population growth, and real per capita sales fell something like 6 per cent-plus.

Yet new governor Michele Bullock felt it necessary to hike in November – the first hike since June. Perhaps spooked by the – actually misleading – spike in inflation in the September quarter.

As I argued at the time, that spike was a one-off – caused by petrol and the national wage case decision.

Although she may also have been spooked – or rather, prompted – by Treasurer Jim Chalmers, reverting to his trainer wheels and ‘instructing’ her and her board not to hike.

After that, she almost had to.

Wednesday’s inflation numbers will show inflation falling below 5 per cent and maybe even to the low-4s.

No, the battle won’t be over: inflation needs to be wound back and then kept below 3 per cent.

But that doesn’t require further rate hikes; and would allow for some cuts, starting off with reversing the unnecessary Cup Day hike, as the RBA pursues its new twin-mandate objectives.

Next week’s RBA meeting will, fascinatingly, be the first under the new ‘Chalmers rules’, including the first-ever post-meeting media conference from the governor.