Australia | Mar 31 2010
By Greg Peel
I noted in this morning's Overnight Report that today's economic data releases would have to be “startling bad” for the Reserve Bank to reconsider raising its cash rate on Tuesday. Well – the retail sales figure was a bit of a shock.
Economists had expected a 0.3% increase in retail sales in February following January's big jump of 1.1%, but they got a bit of a shock when the number came out as a 1.4% fall.
Food sales account for 40% of this figure and they were down 1.7%, but food prices can be volatile and are typically a lagging factor in an upswing. More surprising was a 1.3% drop in household goods sales and more particularly a 3.9% drop in both department and clothing store sales.
To Westpac, the figures point to “stalled demand”. Spending in this category was running at 10% growth before the GFC and hence the anaemic pace of current growth over recent months is hardly evidence of a strong economic recovery. It looks even worse when you consider Australia's rapid population growth at present.
ANZ is not quite so alarmed, noting that retailers of imported goods have been offering discounts recently given the strong Aussie, which could account for part of the apparent weakness. ANZ notes that such figures are also quite volatile, and that a 3.4% year-on-year growth in retail sales suggests the underlying trend remains solid.
Next, economists had been looking for a 2% rise in building approvals in February following a 5.5% fall in January, but a 3.3% fall was recorded. House approvals fell 0.9%, apartments 10.9% and non-residential buildings 13%.
Clearly the “non-res” sector is still suffering the GFC blues while apartment investment is not rushing back either, albeit this number can be volatile. But the house approval number does show that rate rises are now biting and the effects of fiscal stimulus have waned. It is a “clear sign the surge has passed its peak”, notes Westpac, while ANZ frets that ongoing RBA tightening will apply more pressure at a time when housing demand is still rising.
The RP Data-Rismark house price index released today shows a 1.4% rise in the national medium dwelling price in February, making the year-on-year rise 12.7%. ANZ can't see anything but stronger house prices from here, although the pace might slow. First home buyers are now being put off by rate rises but upgraders and investors are moving in to fill the void.
So did Glenn Stevens start wavering over the retail sales and building approval results? While the initial burst of economic enthusiasm might be slipping, the trend remains positive, and as Stevens told Kochi house prices are his pet concern.
And then came the private sector credit details.
Private sector credit grew by 0.4% in February as expected to continue a gradually improving trend. Housing sector credit grew by 0.7%, which implies the pace of growth is slowing with rate rises and lack of stimulus, but Westpac again points to the owner-occupier being slowly replaced by the investor to ensure an ongoing trend.
Business sector credit fell by 0.1% which it has done now for about the past three months. This implies we are now over the GFC-related crunch in business sector borrowing, but that a turnaround into the positive is being held back by timid businesses not wishing to gear up again. The year-on-year decline is 7.6%. Anecdotally, notes ANZ, smaller business ares still struggling to find a bank who will lend them any money which is no doubt adding to the weakness. But economists point out that small business lending growth always lags larger business lending growth following a downturn.
Westpac expects business lending to return to the positive this year given balance sheets have now been strengthened.
Personal credit is eking its way back with a 0.4% rise in February and 1.4% over the past year. Personal credit is not just the fantastic plastic but also takes into account margin lending for stock purchases which obviously took a bath over 2008. The equity market has recovered considerably but clearly investors, too, are not too keen to leverage up again in a hurry, ANZ suggests. And the plastic is also being kept at bay.
ANZ's conclusion from today's data is that they “indicate short-term volatility but persistent growth for the Australian economy”. ANZ still expects a 25 basis point hike next week.
Westpac did not offer a view as at its “first impressions” release this afternoon, but Commonwealth Bank is also still expecting a 4.25% on Tuesday.
CBA is at odds with its broking arm, given that CommSec expects a pause being the most likely outcome next week. These data suggest the RBA does not need to rush.
Those watching the Sunrise program this week (alas, I missed it) were nevertheless convinced Glenn Stevens had pretty much guaranteed an April rate rise as he took the opportunity for a one on one with the Australia people. Will retail sales change his mind?
Well the Aussie's down nearly half a cent post the release, so the forex market is not as convinced. But given that there's dissent among economists, I'll go for a raise. (It's when they all agree that you should expect the opposite.)