Retailing, building post surprise gains

Consumers seem to be doing their bit to keep the economy on its growth path, while a gain in building approvals also provided a positive surprise.

Retail sales in March rose 0.9 per cent in March, the most since April 2011 and much higher than the 0.2 per cent expansion tipped by economists. The growth figure for February was also revised higher, to a 0.3 per cent growth pace from an initially reported 0.2 per cent rate.

Retail trade rose in the month to a seasonally adjusted $21.231 billion, compared with a upwardly revised $21.032 billion in February the Australian Bureau of Statistics said today.

Australia's economy is generating mixed signals. On the one hand, the mining boom continues to apace as miners prepare to ramp up production. On the other, flat or falling housing prices is denting confidence in many households. Overseas news is also looking less positive, with China's growth slowing and some European countries dropping back into recession.

For March alone, spending at cafes and restaurants rose 2 per cent, and consumers spent 1.6 per cent more on clothing and footwear, and 0.9 per cent more at food stores, today’s report showed.


"March data show a revival in retail spending after growing, on average, below trend for over a year," said Moody's analyst Katrina Ell. "It is too early to suggest retail spending is on the mend as this is the first upbeat data point in months."

For the three months to March, retail spending rose 1.8 per cent, the ABS said, better than the 0.4 per cent pace tipped by economists for the quarter. The result was also better than the revised 0.5 per cent growth recorded for the final three months of 2011.

The news helped buoy the dollar, trimming some of its losses for the day as investors pared back their expectations of a June interest rate cut to follow last week's half-point cut by the Reserve Bank.

The dollar recently bought $US1.0135 from $US1.011 just prior to the release.

Better position

JP Morgan economist Ben Jarman said the retail and building approvals numbers showed the Australian economy is in a better position than previous data had suggested. Building approvals rose 7.4 per cent for the month, erasing most of the previous month's drop.

‘‘In retail trade we have the strongest number for at least a year, which is surprising given the context we’re looking at, with falls in consumer confidence and growing concerns about the global economy again,’’ Mr Jarman said.

‘‘So it runs contrary to that, but if you look at the breakdown, there are some broad-based improvements," he said.

The improved building approval data was also indicative of a healthier sector than suggested by earlier data, Mr Jarman said.

‘‘It shows that building work is on a gradually downturn rather than totally falling off a cliff," he said.

‘‘Overall, we think this data is showing us that things are a little bit more stable than the story that some of the bears are painting.’’

No cartwheels

While the retail sales and building approvals may have dimmed hopes of another interest rate cut, some economists said it's too early to predict a revival in the overall economy.

Weak job advertising figures out today such soft demand for labour - a key determinant of consumer confidence. The state of the jobs market will be revealed on Thursday when the ABS releases employment figures.

"I don’t think policy makers are going to be doing cartwheels in the street and saying it's all up from here,’’ said Macquarie senior economist Brian Redican, responding to today's economic data.

‘‘It certainly reduces the chances of a follow-up move by the Reserve Bank in the next couple of months," he said.

That said, investors still view the RBA as likely to cut the cash rate to 3.5 per cent on June 5, viewing it as a three-in-four chance.

Building approvals

Australian residential building approvals rose 7.4 per cent to 11,501 units in March. This result compares with a downwardly revised 10,710 units in February, seasonally adjusted.

In the year to March, building approvals were down 15.0 per cent, the ABS said in a separate release.

Economists’ forecasts had centred on a 3.0 per cent rise in approvals for March alone.

Despite the better-than-expected figures for retailing and building approvals, analysts such as Shane Oliver, AMP Capital Investors Head of Investment Strategy, remain to be convinced.

“I suspect that (the retail) strength we are seeing is being driven by price discounting rather than underlying strength,” Mr Oliver said.

The building approvals revival may also be a momentary blip in an otherwise weaker real estate sector.

“A bounce was expected by the market,” he said. “It’s a temporary respite from the ongoing weakness we’re seeing.”

Jobs view

The outlook for another rate cut is likely to hinge in part on tomorrow's federal budget and also on the labour market numbers for April.

The market tips a loss of 5000 jobs in April, when the data is released Thursday, taking the unemployment level to 5.3 per cent from its current level of 5.2 per cent.

ANZ Bank, though, forecasts a loss of 15,000 jobs for the month, although it also tips the 5.3 per cent jobless rate.

‘‘The fall in employment is largely predicated on a reversal of the out-sized rise in overall employment in March and in particular in female part-time employment, a notoriously volatile component of overall employment,’’ said ANZ Australia economist Ivan Colhoun.

Chris Zappone, BusinessDay with AAP, Bloomberg