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Dollar drives tourist numbers as shoppers dig deep

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We won't know for sure until the sales figures come through, but consumer and business sentiment were looking relatively healthy leading into the holiday shopping season after a difficult year of low growth, weak commodity prices, generally anaemic investment returns and political upheaval.

Although the December Westpac-Melbourne Institute consumer sentiment survey found the mood had soured slightly from a near two-year high in November, the headline index remained in positive territory.

Respondents were upbeat about household finances, the labour market and whether or not the moment was right to buy a major item.  

However, the "Turnbull effect" – first seen after Tony Abbott's removal from the prime ministership in September – was starting to wane, and debate about a higher GST rate also hurt the mood.

This did nothing to flatten retailers' spirits.

About the same time, the traditional Christmas sentiment survey by business services group Deloitte found retailers in a buoyant mood about prospects for the shopping season.


Almost one-fifth of surveyed retailers expected sales to lift at least 5 per cent compared with last Christmas, while about one-third believed they would improve by 2 per cent to 5 per cent. One-quarter forecast a rise of less than 2 per cent, and only 10 per cent expected no change.

How all this optimism will translate into company sales and profits won't be clear for a while, but most economists agree that with mining-related activity continuing to slow, consumers and house buyers are important to Australia's growth rate in the final quarter and moving into 2016.

Altair chief economist Stephen Roberts said quarterly growth in gross domestic product of 0.9 per cent in the three months to the end of September would be hard to sustain, as would year-on-year expansion of about 2.5 per cent.

With the continued decline in resources-related investment and the slow pick-up in non-mining business spending likely to further drag on activity, consumers would need to do a lot of the heavy lifting, he said.

"Retailers may be enjoying a good pre-Christmas spending season, but nowhere near that good a season," he said. 

"Looking out in 2016, GDP growth​ looks set to run at 2 per cent to 2.5 per cent year-on-year, with domestic spending still struggling to run much better than zero growth.

"The good news is that [this] is not recession, but the bad news is that this is not particularly strong growth either and is probably not sufficient to allow employment to continue running anywhere near as strongly as it has been over the last few months."

This language will not please the Reserve Bank of Australia, which has been surprised by the labour market resilience in 2015.

From a 6.4 per cent peak in January, to a surprisingly low 5.8 per cent in November, the official unemployment rate tells a different story than the figures on government and business investment, which have shrunk.

T. Rowe Price's head of Australian equities, Randal Jenneke, said the anomaly was easily explained.    

"The reason why resource areas attract so much attention is because the swings in a cycle, from peak to trough, are often large and spark big movements in commodity prices," he said.

"Yet, only around 5 per cent of the Australian workforce is in mining-related parts of the market.

"This is in significant contrast to the 40 per cent of the workforce that is in retail, construction, and manufacturing.

"Therefore, from an employment perspective, what matters most are the service parts of the economy, where a much larger percentage of workers are concentrated."

It is these areas which have been picking up the slack left by the mining investment downturn, economists point out, with international tourism and education in particular benefiting from the Australian dollar's depreciation of nearly 12 per cent against its US counterpart.

"This becomes very important from an employment perspective because, unlike the mining sector, the tourism part of the marketplace is very labour intensive," Mr Jenneke said.

"This is one of the reasons why the job market has surprised."

Commonwealth Bank of Australia chief economist Michael Blythe said the pick-up in inbound tourism – particularly from China – also helped retailers.

"In the last 12 months, 995,000 people from China have been to Australia for a holiday, which is a huge boost," he said.

"And what we've also discovered is that the Chinese tourists spend more than any other tourist. 

"One of the areas where they outpace everybody is in shopping, so it's been a very useful boost to the retail sector, because they hit the shops when they're here."

Mr Jenneke also said the low dollar meant Australians were more likely to holiday at home than abroad.

"More money is being spent by tourists coming to Australia, but there is also less outbound tourism, meaning more people are staying home and spending money," he said. 

Mr Blythe agreed: "A low exchange rate is a good way of ensuring that domestic spending doesn't go on imports, that it stays within your country."