Australia | Aug 03 2010
By Chris Shaw
There was more evidence the interest rate sensitive sectors of the Australian economy are slowing today, with June retail sales and building approvals data both coming in below market expectations.
Retail sales for the month rose just 0.2% against market forecasts of a 0.4% gain, while building approvals fell 3.3% when the market had been looking for a gain of around 2.0%.
With respect to the retail sales number, ANZ senior economist Katie Dean notes the 0.2% increase means yearly growth is now 1.9%, this is well below the longer-term average level of around 6.0%.
The June outcome reflects a 0.3% fall in food retailing, which Dean suggests is likely to be a combination of lower fruit and vegetable prices and discounting by the big grocery chains. Ex-food, retailing rose by 0.5% in what was seen as a solid result.
Trend sales give a better guide to the pace of spending at present according to Westpac, this measure showing growth of just 0.3% in June. While this is better than the 0.2% gains over the past quarter, the pace of improvement is very modest in the bank's view.
Dean suggests the retail sales result shows Australian consumers lack conviction at present as the broad-based discounting evident in the market implies soft household demand. Westpac agrees, suggesting the weak demand trend means today's data were not totally unexpected.
The positive in Dean's view is this softness in demand is exactly what the Reserve Bank of Australia is trying to achieve as it looks to counter the potentially inflationary impact of any upcoming investment boom.
With respect to building approvals the 3.3% fall in June means year-to-date residential building approvals are now down 12.1%. Private sector detached housing building approvals were down 2.5% for the month, compared to apartment and unit approvals that rose 2.7%.
Westpac notes private sector house approvals are now trending lower at a rate of 2.2% per month, which suggests a significant downturn but not a particularly sharp one in the bank's view.
In value terms, Dean notes building approvals fell 2.4% in June, the weakness driven by a 5.5% fall in the residential building sector compared to a 4.4% gain in non-residential approvals. The data suggest the residential pipeline is getting weaker in Dean's view, with housing investment expected to be a drag on the economy over 2011.
Overall, Dean suggests today's data show the RBA has time on its hands with respect to interest rates, with no changes expected for a few more months.
Over at Commonwealth Bank, the economists report they stick to the view that interest rates in Australia will be lifted one more time this year, and by 25bp.
