Are February retail figures too good to be true?

About Life Shopping 2February’s retail trade figures have left the sector with crossed fingers and a healthy dose of scepticism.

A better than expected 1.1 per cent rise fashion, footwear and accessories trade – which supported a 1.5 per cent rise for department stores – drove a 0.6 per cent increase in retail spending in February, twice as much as economists were expecting after a 0.2 per cent increase in January.

Year-on-year growth was up 3 per cent, the strongest result since July 2017, filling yesterday’s headlines with a degree of positivity that’s become scarce around the ABS’ monthly releases.

Commsec chief economist Craig James said the February figures have injected some hope into the retail sector, after a weak end to 2017.

“So much for the imminent ‘death’ of bricks and mortar retailing. Yes, Amazon has launched. Myer is struggling. Costco is adding more warehouses … but the re-acceleration in consumer spending gives retailers hope,” James said.

But is it too good to be true? ‘Economists unconvinced’ was the prevailing angle several hours after the ABS sent out its release as others began to temper optimism by dishing out some macro-economic realities.

“While it’s encouraging that retail sales didn’t falter again, we remain cautious about the outlook given the challenges facing household balance sheets,” ANZ senior economists Jo Masters said of the figures.

“Anaemic wage growth, record high debt, slowing house price growth and most recently a stalling in consumer confidence all act to offset the strength in jobs growth.”

Australian Retailers Association executive director Russell Zimmerman has his fingers crossed that March data will come up good, but even the fierce sector advocate is stopping short of any grandiose statements.

“I’d want to see a sustained increase before I call it that,” he said.

For the likes of Myer, Specialty Fashion Group and other struggling fashion retailers and department stores there’s a lot on the line – the sector has already seen its fair share of collapse in 2018 and research has shown that there are many more teetering on the edge.

On Tuesday RBA governor Phillip Lowe, explaining why the central bank decided to keep the official cash rate at 1.5 per cent for the 18th straight meeting, said pressure on households was still front of mind for the economy.

But he also gave the sector reason to be optimistic, saying that there were signals emerging that record low wage growth rates had “troughed”.

“Consistent with this, the rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills,” Lowe said.

Positive. After all the bedrock of orthodox macro-economic theory is that a tightening labour market will result in higher wages, leading to higher consumption and, in turn, higher inflation.

But there are those who are questioning the wisdom of the Phillips Curve in the modern economy, and those, like Masters, who say that rising power costs and high household debt are constraining the relationship between unemployment and spending.

There have been some other positive signs recently though, with card data processed by CBA and NAB showing growth in consumer spending.

Attention will now turn to Treasury figures due out with the budget in the coming weeks, which will provide some certainty, and possibly some clarity.

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