SYDNEY: Australian retailers suffered their biggest sales drop in eight months in December, recoiling after consumers brought forward their Christmas shopping although timely card spending data by banks point to a rebound in the New Year.

The 4.2% month-on-month drop in sales was spread across five of the six retail categories, led by household goods, department stores and clothing, the Australian Bureau of Statistics (ABS) reported on Friday.

Generally, the preliminary data is a good indicator of the final estimate which will be released on Feb 5.

Annual turnover was up 9.4%, led by a sharp 7.1% jump in November.

"After the strong Black Friday sales in November, the drop in December was largely expected," Citi economist Faraz Syed wrote in a note.

Economists had predicted a 2.5% fall. The Australian dollar slipped about a quarter of a US cent to hit a day's low of $0.7743.

Despite December's dour results, Citi economists expect real retail sales in the December quarter to rise about 1.5%, implying a 0.3 percentage point contribution to fourth-quarter gross domestic product.

Syed said the larger-than-forecast drop could be due to a renewed coronavirus-induced lockdown in Sydney's Northern Beaches around mid-December.

Mobility restrictions were largely lifted in early January after New South Wales state controlled the small virus outbreak, suggesting the outlook is better for January, economists said.

That optimism was borne out by the Commonwealth Bank's data on spending on their credit and debit cards in the week to January 8, which jumped 13.1% on a year ago with spending on services rising 1.5%.

Moreover, the Westpac Card Tracker Index hit a new post-COVID high in the second week of the new year, recording a sharp 18.7% surge over the week to January 9.