Australia | May 06 2010
By Chris Shaw
Australian retail sales for March have disappointed the market, recording a gain of 0.3% when consensus expectations were for an increase of 0.7%. The volume of retail sales was also little changed, rising just 0.1% in the March quarter.
According to ANZ Banking Group senior economist Katie Dean, the weak retail sales numbers were driven by a 1.0% fall in household goods retailing. Other sectors were positive, though only the retailing and cafes, restaurants and takeaway food services sectors retraced enough to be above the levels recorded in January.
In monthly trend terms, Westpac notes today's data represent a flat outcome, so given population growth is running at around 2% annually today's March quarter data imply a significant rate of decline in per capita retail spending.
ANZ's Dean agrees, noting the data confirm rising interest rates and higher petrol prices are more than offsetting a strong labour market and high levels of consumers confidence. This means the retailers may continue to bear the brunt of the impact of the Reserve Bank of Australia (RBA) moving to normalise interest rates.
While monthly retail sales data are volatile, Westpac suggests today's numbers reinforce a long enough trend of data to suggest a real spending phenomenon of weak household goods sales. As such sales have many components leveraged into a housing cycle, today's result points to downside risk to national accounts estimates for both consumer spending and GDP in the March quarter.
Westpac had been forecasting total consumer spending growth of 0.6% and GDP growth of 0.4% respectively for the March quarter.
On the release of the retail sales data, the Australian dollar weakened a little, a trend Westpac suggests is likely to continue barring any significant developments in Europe. Post the data the bank notes the bond market is pricing in a 15% chance of the RBA again lifting interest rates at its June meeting.
ANZ's Dean doesn't expect such a hike, suggesting today's data are likely to keep the RBA on the sidelines for the shorter-term. By the end of the year however Dean expects the cash rate will have risen to 5.25%.
