Business

Thursday September 10, 2009

Australia July retail sales slip raises concerns


SYDNEY: Australian retail sales unexpectedly fell in July, a second straight month of weakness that could fuel concerns about the resilience of consumer demand and push back the expected timing of a first rise in interest rates.

However, a separate survey from Westpac showed consumer sentiment surged to two year highs in September, offering hope that the pause in spending was only temporary.

“Sales have naturally paused after a frenetic few months and that was always likely as fiscal stimulus wore off,” said Brian Redican, a senior economist at Macquarie.

“What’s critical is whether this is the start of a weakening trend, and the strength of consumer sentiment suggests it’s not,” he argued. “But it may mean the Reserve Bank has to wait to confirmed it, which argues against a hike as early as October.”

Data last week showed the Australian economy grew at 0.6% in the June quarter, the highest of any developed nation. Firms also ramped up their spending last quarter and upgraded planned investment for 2009/10.

The Reserve Bank of Australia (RBA) has made it clear rates would have to rise from their emergency low of 3% as the economy recovers, but has also highlighted the risk that consumer demand could relapse as the impact of fiscal stimulus waned.

Such caution seemed warranted as government data showed retail sales fell 1% in July, when the market had looked for a 0.5% rise. This followed a 0.8% decline in June, though that was revised from an initial 1.4% drop.

Retail sales account for around 23% of Australia’s annual economic output and the sector is the biggest employer with about 15% of all jobs.

Overall, sales were still up a solid 5.1% from July last year, showing the lingering effects of government handouts in December and April.

Likewise, tax breaks for first home buyers, combined with mortgage rates at 50-year lows, helped boost housing demand in the first half of the year.

But again demand paused in July, with the number of new home loans taken out falling 2% in the month, the biggest drop in a year.

“The key message in today’s mixed data is really one of uncertainty as to how households behave as the fiscal candy is withdrawn,” said SuLin Ong, a senior economist at RBC Capital Markets.

“The lingering uncertainty suggests that the RBA may be patient in beginning to lift the cash rate as it awaits further data,” she added.

Yet while households might have turned more parsimonious in July, more recent indicators suggested the mood has improved.

A survey of Australian businesses out on Tuesday showed confidence climbed to six year highs in August, with sales and profits both improving.

Wednesday’s survey of 1,200 consumers from Westpac was just as upbeat. The survey’s main sentiment index rose 5.2% in September, the best reading since July 2007 and bringing gains in the past four months to a record 34.4%.

“This is a truly extraordinary result,” said Westpac chief economist Bill Evans. “The standout story is the relief rally for consumers relief that the economy has avoided recession and that expected job losses have not materialised.”

Figures on employment for August are due on Thursday and could be critical in deciding whether the consumer stays so upbeat. — Reuters


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