Australia | Sep 30 2009
By Chris Shaw
Retail sales in Australia rose 0.9% in August, a result Westpac notes was above the market’s expectation of a 0.5% increase and one ANZ economist Dr Alex Joiner suggests is a good indication households will continue to spend even as fiscal stimulus measures are discontinued.
According to Joiner, today’s data suggests the recovery in the Australian economy has good momentum, especially as other data such as RP Data numbers for the housing market, also out today, showed there is strength elsewhere in the economy given national dwelling prices rose 1.9% for the month, with increases recorded everywhere except for Darwin. Prices have increased by 7.9% year to date.
With respect to the retail data, sales were up across all states, which Joiner suggests is a sign confidence levels are continuing to improve. This gives an indication consumers will continue to spend, especially as the increase in house prices implies higher household wealth. The higher confidence displayed by today’s numbers also leads Joiner to suggest the Reserve Bank of Australia (RBA) will read the data as an indication increases to interest rates will also be more likely to be able to be weathered by the broader economy.
Westpac notes the retail sales increase registered for August compares to falls of 0.9% in July and 0.8% in June, with the details indicating there continues to be a rotation towards cyclical discretionary spending consistent with the surge in consumer sentiment.
In the bank’s view this will remove some of the uncertainty the RBA may have had with respect to the strength of the recovery, meaning it adds weight to the argment for hikes in interest rates. ANZ’s Joiner agrees, pointing out post today’s data there is no change to his expectation interest rates will be tightened before the end of the year.
Private sector credit data for August was also released and a rise of 0.1% for August was recorded, which Westpac senior economist Andrew Hanlan notes fell short of market expectations of a 0.2% gain. While housing credit numbers were solid, business credit contracted and personal credit continues to show weakness for the year so far despite a rise of 0.5% for the month. ANZ head of property and financial systems analysis Paul Braddick suggesting the decline in the latter was due almost entirely to lower levels of margin lending given the fallout from the global financial crisis.
This data was largely ignored by the foreign exchange market, however, as Westpac notes the stronger retail sales figures were of significantly more interest to traders, resulting in the Australian dollar pushing higher. In the bank’s view it seems inevitable the dollar will rally further against the US dollar in coming sessions, even allowing for some resistance at the US88c level.