Australia | Aug 04 2009
By Chris Shaw
Given recent Australian economic data had largely been better than expected, the fall in nominal retail sales of 1.4% for June was a surprise with the market consensus expecting an increase of 0.5%. According to Westpac, the decline reflects the waning impact of the Federal Government’s second fiscal stimulus package, which ended in May.
ANZ Banking Group economist Riki Polygenis notes the weakness was widespread, with all categories except for household goods posting lower numbers and department store and clothing and soft goods sales particularly weak. Commonwealth Bank cautions today’s data may be an indicator of weaker sales in coming months as stimulus payments are finished, the key for retailers being whether or not improved confidence causes spending to increase.
On the plus side in this respect, the bank’s senior economist Michael Workman suggests as households have been actively rebuilding their financial position by paying down debt, they may regain the confidence to lift spending again in coming months as rising equity markets and a stronger Aussie dollar may prove positive for sentiment.
While nominal sales fell in June, the volume of retail sales in the month actually increased by 2.0%, which Westpac notes was above market forecasts of a rise of closer to 1.3%. Revisions to figures for previous months mean real retail sales actually rose 2.0% for the June quarter and annual growth in retail sales is now 7.5%.
The increase leads Westpac to suggest higher consumption could add around 0.2% to GDP for the quarter, which it currently forecasts at 0.2%. Commonwealth Bank is slightly more aggressive with its estimate, suggesting today’s data could add 0.5% to GDP, which it forecasts at 0.3% for the quarter.
In the view of Polygenis, today’s data offer mixed signals to the Reserve Bank of Australia (RBA) as interest rates are currently set for a severe recession and the data are not presently playing out that way, so causing imbalances in the data such as today’s reported increase in house prices.
She suggests while the RBA may want to lift rates to take some steam out of the housing sector it is unlikely to do so while the economic recovery remains fragile, meaning the RBA is unlikely to make any change to official rates (today the RBA removed its easing bias, as expected).