The week that was
With the RBA predictably on hold, the focus was on the retail trade data which showed a sharp pull-back from the iPhoneX and black Friday sales boost in November. Retail sales fell 0.5 per cent in December to partly reverse the 1.3 per cent gain in November. Annual growth through 2017 was just 2.5 per cent. This is close to the weakest yearly growth in 50 years.
The news was a little better with the quarterly data which showed a 0.9 per cent rise in the volume of retail sales, albeit after a moribund 0.1 per cent rise in the prior quarter. This result will be an important foundation for the quarterly GDP result which will be released next month.
Suffice to say whether it is the volume or the nominal value of retail sales, consumer spending remains problematic with weak wages and high levels of household debt acting to constrain spending. If the economy is to pick up steam, as the RBA is betting the house on, retail and consumer spending will need to lift from the current funk, and do it soon.
The week ahead
With the labour market such a pivotal issue for markets and policy makers alike, the next monthly update will be delivered by the ABS on Thursday.
The stunning lift in employment through 2017 – over 400,000 additional jobs – has been well documented and economists, including at the RBA, will be on edge for signs of further strength. The interesting issue, and one that remains the conundrum, is that despite the strong gains in employment, the unemployment rate has only inched lower over the past year and remains at an uncomfortable 5.5 per cent. At the same time, underemployment remains over 8 per cent of the workforce and wages growth continues to track around historical lows. These are not the characteristics of a strong labour market.
Even the otherwise upbeat NAB survey is suggesting some pull-back in employment growth in the near term. From a monetary policy perspective, a drop in employment in next week’s data and a further uptick in the unemployment rate, both of which the NAB survey suggests is possible, would be another nail in the interest rate rate hike coffin which was dealt a severe blow with the recent inflation data and market volatility.