Australia | May 06 2009
By Chris Shaw
One of the newer terms to emerge with respect to economic data in recent weeks is “green shoots”, which as the name suggests is the emergence of some good or better than expected news in what had otherwise been a fairly barren picture.
The Australian economy enjoyed a green shoot of its own today with the release of April retail sales data showing a rise of 2.2%, well above consensus estimates of an increase of 0.5% and a far cry from the 2.0% decline recorded in February.
As ANZ Banking Group economist Katie Dean notes, the monthly figure means the yearly growth in retail sales now stands at 6.3%, its highest level since January last year. Westpac also points out today’s reading means monthly sales are 4.5% above the level of last November, which preceded the Federal Government’s first stimulus package. It also represents a stronger through the year pace than was registered in December and January.
Driving the gain was a strong jump in department store sales as well as the commencement of some family bonus payments, a higher equity market and lower petrol prices. According to Commonwealth Bank economist James McIntyre, around 15% of the stimulus payments received in March went straight to retail spending, an outcome about twice as high as he had factored into his estimates.
But the numbers, while better, remain volatile, with Dean noting the retail sales reading in particular is showing a lot of variation given the same measure in February recorded a 10% decline. As a result of this volatility Dean suggests the best conclusion to be drawn from the data is retail sales have stabilised over the first quarter of 2009.
In her view the number also suggests fiscal policy is working to buffer households against the impact of rising unemployment, while Westpac also sees it as offering some upside risk to March quarter GDP numbers expected in early June. McIntyre agrees, suggesting the forward outlook for the Australian economy is finely balanced at present as further stimulus payments work to offset the prospect of higher levels of unemployment.
The bank is currently forecasting GDP for the period of minus 0.5%, but it estimates today’s data imply a boost to this figure of as much as 0.2-0.3%, a number in line with the estimate of CBA’s McIntyre. While McIntyre expects the stimulus payment impact to fade in coming months, he also points out by then other stimulus measures will be flowing through, so retail sales are likely to remain above pre-stimulus levels.
The April surprise also, in Dean’s view, adds to the case for the Reserve Bank of Australia (RBA) to leave official interest rates untouched for the next couple of months. It does not, however, confirm the bottom of the rate cycle has been reached given further weak economic data are still expected in coming months.