ABS hardware retail stats: March 2022
The end of the surge?
The March 2022 retail figures show strong indications that this month is the first statistical move from the "new normal" of the pandemic times to the "next normal" that is the start of the post-pandemic times. While pandemic concerns remain - COVID-19 is still with us - other economic forces will determine growth.
Thu May 19 2022
The Australian Bureau of Statistics (ABS) has released hardware retail revenue statistics through to March 2022. Given that these statistics have become difficult to interpret through the usual means, HNN has moved to charting these in comparative 12-month periods.
The current charts are based on the time segments for the 12 months ending in March, which we refer to as "periods", and designate with the abbreviation "p" followed by the year of the end month. So the time segment from April 2020 to March 2021 would be p2021.
So as to get a better grasp on the growth levels as well as overall revenue, we've included a second chart to accompany the primary revenue chart. This second chart shows the month-on-corresponding-month (MoM) growth rates as a percentage.
It is always somewhat difficult to determine whether it is better to build the statistical picture by starting with individual components of a statistical view, and then build these into a statistical overview, or to begin with that statistical overview.
In this case, the nature of the statistics indicates that the overview might be the best place to start, so we will start by looking at the ABS figures for hardware retail revenues across Australia. Hopefully the reasons for this will become evident.
Looking at the most recent results, for March 2022, the strong uptick for this month that has become a feature of the pandemic period is repeated in original revenue terms. However, in terms of the growth rate (shown in the bottom chart) a difference is apparent.
The March 2020 growth rate (green line) shows the initial sharp uptick that surprised the industry, up 18.0% in MoM terms. For p2021 that fell to 4.3%, then in the current p2022 rose to 8.8%. That is a significant increase, but it is slightly less than the increase for February 2022, which was 9.0%.
Taken in a broad view, the percentage change chart shows that what has happened is a historically large surge in growth from March 2020 through to February 2021. This includes the very high rates for April, May, June and July 2020, which were respectively 26.39%, 37.62%, 31.88% and 27.85%. This contrasts with the best growth rates post the global financial crisis (GFC) and pre-pandemic of 10.61%, 7.61%, 2.26% and 1.69% for those four months in 2016.
That growth surge moderated to around 4.3% in March 2021, then went under -5.0% for April to July 2021 - an almost mirror-like inversion of the growth surge in the previous year.
That mirror-like inversion could benefit from further investigation. Chart 2 has broken out the revenue growth for p2021 and p2022. The dark grey line that has been added is simply the average of these two growth rates.
Looking at the time segment from April through to February, while the growth rates for the two periods fluctuate strongly, the average of the two fluctuates between 14.1% in December, to a low of 9.7% in August - a range of 4.4%. The average growth rate for that period is 11.8%.
March 2022 presents itself as a (temporarily) unique datapoint. That is because it is the first month of the third year of the pandemic. That means that, unlike February 2022 (for example) its revenue is the culmination of three years of higher, pandemic-era growth rates.
Given that, it's perhaps not that surprising that the growth rate for March 2022 breaks out of the "mirrored" range that has held for the previous 12 months. This is really the first somewhat significant statistical indication that there may be a reset downwards in terms of expected growth rates for the future.
If this analysis is correct, and the March 2022 figure is statistically significant in this way, we can start to add some structure to the interpretation of historical hardware retail revenue figures, and set some firmer forecast expectations.
We will delve into that modelling in the Analysis section of this article.
New South Wales
Original hardware retail revenue for New South Wales (NSW), shown at the top of Chart 3, indicates the familiar pattern from the Australia-wide chart, with p2021 and p2022 seemingly disconnected from the four prior, pre-pandemic periods.
Looking at the MoM growth rate chart on the bottom of Chart 3 shows, again, how much of this change took place in p2021. In this case the growth surge extended from April 2020 through to February 2021, albeit with a dip below 20% growth in November 2020.
The mirroring between p2021 and p2022 that can be observed in the national figures is only intermittent for NSW, evident in April through to July, and then in a diminished form from December through to March.
In fact, what is most interesting about the MoM growth chart is that growth rates through p2022 are not for the most part historically high, with growth rates for p2017 and p2018 close or higher - only December 2022 shows unusual growth.
The conclusion from this is that while growth in p2021 was largely driven by pandemic factors, for p2022 those diminished, and were overshadowed by the more familiar factors associated with the tight housing market in NSW.
As the state that arguably suffered the most during the pandemic years, there is often an impression that Victoria (VIC) also saw the sharpest rises in hardware retail revenue. However, as the chart shows, the state's experience is mid-way between that of NSW and South Australia (SA). There are periods of a surge, but for the most part revenues are boosted, but have some relation to pre-pandemic revenues.
For example, the annual high spending period from October through to December was certainly boosted considerably during the pandemic, with November 2020 revenue hitting an all-time monthly high of $677 million. In fact, as shown by the top revenue chart, if there is a single anomalous number to point to, it would be for revenue in February 2022, which did not decline on January revenue as much as would be expected.
The bottom chart shows the familiar surge starting in March 2020, but it truncates quite sharply in August 2020, with growth dropping below the level of August 2019. There is a brief resurgence in November and December 2020, but from January 2021 through to March 2022 growth levels are below those of p2019 - with the exception of those numbers for February 2022.
In terms of a mirroring between p2021 and p2022, there's a muted form of that from April through to October but then it begins to break down. As with NSW, the housing market has a strong influence on hardware retail revenues in VIC.
In some ways, it is Queensland (QLD) that displays the most clearcut increase in hardware retail revenues through the initial year of the pandemic. As the top original revenue chart in Chart 5 shows, the two pandemic years show a wide gap back to the pre-pandemic years.
Looking at the MoM growth chart on the bottom, it can be seen that from March 2020 through to February 2021, the growth rate remains above 20% - except for a blip down to 19.0% in August 2020.
We can also make the case for a degree of mirroring between p2021 and p2022, as shown in Chart 6.
It's a relationship that holds up fairly well from April to November, as illustrated by the relatively flat average line, with the average growth rate at 12.4%.
The hardware retail revenue trend for SA is somewhat like that for NSW in that the p2022 revenue has mostly exceeded the p2021 revenue, but it is also like VIC in that the boost to revenue still follows the pattern from pre-pandemic years.
If there is something unique about the SA figures, it is the ongoing high level of performance through the first quarter of 2022, with all three months significantly above the 2021 levels.
Looking at the MoM growth chart, there is the familiar surge starting in April 2020 and continuing to September 2020, with a resurgence in November and December 2020. For most of p2022 the growth rate is less than that of p2018, with the exception of the final three months, January to March, with the growth rate going above 20% in February.
At first glance, the two charts in Chart 8 for Western Australia (WA) seem a little contradictory. While the red line marking p2022 is clearly above the others in the top chart for original revenue, in the bottom chart for MoM growth it is the blue line for p2021 that dominates.
The reason for this is that the comparison that needs to be made for the growth chart is between the green line, for p2020, with the blue line for p2021. What makes that hard to see is that two periods, p2017 and p2018, both outperformed p2020.
This really goes to indicating that the fluctuations in hardware retail revenue for WA have been considerable in the past as well. One of the important facts about WA is that there was a sustained period of declining revenues, producing negative growth, from January 2017 through to May 2019, with the only exception being August of 2017, which showed growth of 1.0%.
For example, the May 2020 spike in growth to 40.4% is based on revenue of $212 million in May 2020 compared to revenue of $151 million in May 2019. However, compared to the local high for revenue in May 2016 of $174 million, the increase for May 2020 was "only" 22.0%.
That said, WA did see the same surge, running from April 2020 through to January 2021, with only September 2020 and November 2020 dropping below a 20% growth rate.
It's probably best, given its revenue history, to remember that while WA is influenced by events such as the pandemic, they are not as determinative as they are for the other states and territories. Particularly with its reliance on natural resources it seems likely hardware revenues will follow a more positive pattern than that of the rest of Australia.
Australian Capital Territory
The Australian Capital Territory (ACT) obviously has a number of unique characteristics: it's small, dominated by the Canberra economy, and relies for its prosperity largely on government funding.
As a result, its revenue statistics are unique in their pattern. While the other states detailed above all do have at least some form of mirror symmetry to their stats, the ACT does not. It does have a p2021 growth surge, which begins actually in p2020 for its March 2020 figure, and continues on to February 2021.
Yet its growth then does go negative during p2022, from April to September 2021, before climbing to over 10% in December 2021, and continuing at that level.
When we speak about "mirroring" and symmetry around an axis of averages, we're really referencing a system where there is a burst of activity, followed by countervailing activity which "balances out" the burst, and provides an ongoing average.
That average is really key to understanding what is going on, as it represents the forecastable growth rate going into the future. When that forecastable rate changes sharply, however, this can signal the end of that "give some, take some" regime, and the resumption of a less-balanced process.
When we look at the numbers for Australia as a whole, the symmetry becomes most obvious, because across that wide of a range the major "signal" in the economy becomes clear, and the minor signals - which differ from region to region - tend to counter each other out, diminishing into background noise.
That "noise" for the most part is going to consist of forces related to the property market, the differing effects of lockdowns and COVID-19 itself, as well as cultural assumptions. That is likely why QLD represents a better symmetrical model than other states. It was less affected than other states, and its housing market operates under very different constraints to NSW, VIC and SA.
One way to look at the surge in demand that hardware retail has experienced is to see the pandemic as a catastrophic event that caused people who had one kind of living situation to change this as swiftly as they could to a different living situation.
There are some real questions about how we forecast future demand that arises from this set of changes. Will that transition be completed, and spending fall off, or is the transition more constant, resulting in a continued elevated level of spending? Will the spending be displaced in the future by other spending, on activities such as overseas travel?
Then, of course, there are the linked economic concerns of inflation and interest rates. There is going to be a steady lift in interest rates over the coming financial year, to a level likely above 2.0%. That is in response to increases in inflation, and consequently the cost of living. It should be noted that the purpose of a rise in interest rates is to reduce demand, resulting in a surplus, which will then decrease prices.
That is made more complex by ongoing supply-chain concerns, which create periodic scarcities, and add inflationary pressure through increased logistics costs.
It's also important to note at this point that the COVID-19 pandemic is very far from being over. There are still building sites that get shut down because some key operator has contracted COVID-19 and needs to isolate/recover for a week or more. There is always the potential for a more contagious/severe form of COVID-19 to take hold, and bring back restrictions.
The best that HNN can say at the moment is that the next several months of statistics, through to June 2022, are going to be vital in developing a longer-term forecast. We can say that the March 2022 stats do seem to mark some kind of a turning point, and that the initial analysis looks like there will be a net decrease in growth from the historically high averages of the past two years through the June quarter of 2022.
We would also signal that in terms of a longer-term forecast, given the current status of the housing market, we believe that the need to change policy to reduce house price growth will result in change. For example, we could see a change in taxation policy that would phase in a maximum limit to the amount of interest that can be tax-deducted, with a higher limit for first home buyers.