Discounts skew sales figures for December

Retailers reduced prices and opted for lower profit margins to encourage consumers to spend more. Photo / Janna Dixon

Discounting rubbed some of the gloss off a moderate rebound in consumer spending last month.

There was a 5.7 per cent increase in the number of purchases charged to credit or debit cards in the core (non-automotive) retail sector, compared with recession-stricken December 2008, but only a 3.6 per cent rise in the value.

The last three pre-recession Decembers recorded volume increases averaging 9 per cent on a year earlier.

When seasonally adjusted, core retail transactions last month were 0.4 per cent up on November and just 2.7 per cent more than in December 2008.

This suggests some combination of retailers passing through to customers the benefit of a higher dollar on the cost of imported goods, discounting to favour turnover over margin, and caution on consumers' part.

Retailers Association chief executive John Albertson said it was a reasonably good recovery from a year which had been pretty flat.

"Anecdotally most were reasonably happy with the volumes they were getting. But the big issue has been around the level of discounting and what is happening to margin," he said.

"The level of discounting we have seen I don't think can continue."

Including the automotive sector, card transactions were up 0.7 per cent on November by value, seasonally adjusted, and up 3.7 per cent on December 2008.

Deutsche Bank chief economist Darren Gibbs said the last two electronic card transactions reports indicated a little more life was returning to the retail sector.

"Still at this stage growth could not be described as strong and this seems likely to remain the case until economic growth broadens and employment [growth] and stronger wage growth resume, which should occur gradually over the course of this year," Gibbs said.

Goldman Sachs JB Were strategist Bernard Doyle expects consumer spending to continue to improve over the first half of the year.

While headwinds remained in the form of subdued growth of household incomes and a general focus on reducing debt, pent-up demand especially for durables, net migration gains and the ongoing benefit of an easing in average mortgage rate people are paying should provide support, he said.

"But how sustainable these improvements will be once monetary and fiscal policy support starts to be removed remains an open question."