So says George Tharenou at UBS.
Sep-23 retail values lift 0.9% m/m, & re-accelerates to 2.0% y/y; above expected
Retail sales values in Sep-23 jumped by 0.9% m/m, well above expected (UBS: +0.4%, consensus: +0.3%), and the largest rise since Jan-23.
This followed an upward revision in Aug-23 to +0.3% m/m (was 0.2%).
Our assessment of the recent ‘trend’ had been a slowing towards ~flat, but there now appears to be some improvement. Indeed, the y/y in Sep-23 re-accelerated to 2.0% (UBS: 1.2%, consensus: nf); after Aug-23 had slowed sharply to just 1.6%, which was the slowest since COVID lockdowns.
Q3 nominal retail +0.8% q/q; but implied ~flat q/q real consumption again
Retail sales values in Q3-23 rose by 0.8% q/q. However, Q3 headline CPI implied a large rise for retail prices (i.e. retail deflator) of ~1% q/q.
Hence, retail volumes probably fell by ~¼% q/q; which is tracking better than our forecast of ~- ½% q/q; and would be a smaller fall than in recent quarters. (The Q3 retail volumes data is released on November 3).
However, we continue to assume an offset from modest growth in non-retail consumption (with the Household Spending Indicator for Sep-23 also released on November 3).
Overall, this suggests total real consumption in Q3 is still tracking to be close to our forecast of ~flat q/q again (after only +0.1% in Q2).
This remains broadly consistent with our view the consumer is weakening, but doesn’t collapse.
Temporary visas in Sep spike to record >2.6mn, or ~10% of the population
A key factor supporting the consumer is the record boom of migration, which is lifting population growth.
Temporary visas data for Sep-23 spiked even further, to a record high level of over 2.6mn, which is equivalent to almost 10% of the population. Hence, it’s likely that actual migration (i.e. the ABS NOM concept) will continue to surprise to the upside.
After migration in the year to Q1-23 already jumped to a record high level of 454k, it seems likely that migration in the year to Q3-23 was above 500k, and perhaps even 600k.
For population growth, this means after it already lifted in Q1-23 to 2.2% y/y, which is around the fastest in ~50-years, population growth likely picked up even further to over 2½% y/y in recent quarters.
This is adding to inflation pressure in the near-term, especially via rents.
Over time, this will improve labour supply, and help to ease some of the tightness in the labour market; but for now the bigger impact is boosting demand.
For further details and investment implications, see our ‘Big Australia’ deep dive. Basically, the UBS thesis of a ‘Big Australia’ just got even bigger.
Real GDP in 22/23 revised down to 3.0% y/y; but Q3 momentum is resilient
The annual (financial year) national accounts (released on 27 October) revised real GDP growth down to 3.0% y/y. This is below the quarterly data up to Q2-23 which showed a 4-quarter/4-quarter change of 3.3% y/y.
However, we don’t see this as a material enough reduction to imply weaker growth momentum. This is because the Q2-23 outcome of 2.1% y/y was ~½%pt above the RBA’s forecast made in their Aug-23 SOMP.
Indeed, the momentum in Q3 data suggests greater resilience than expected.
UBS still expect the RBA to hike 25bps to 4.35%; more likely in Nov-23
Overall, for the RBA cash rate outlook, the key driver remains the higher-than-expected underlying inflation evident in the Q3 CPI outcome; coupled by the trend of the labour market data showing the unemployment rate remains around a 50-year low.
Hence, UBS still expect the RBA to hike the cash rate by another 25bps, to 4.35%. The more likely timing is Nov-23.
The September retail data today reinforces our view the economy is surprisingly resilient, and adds to the case to hike in Nov-23.
Indeed, if this continues, it adds to the risk of an additional RBA hike of 25bps to 4.60% in Feb-24.
The RBA should hike but the appointment of Michele Bullock appears political and her credibility is under severe strain.
