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Retail's ray of sunshine before the cuts

Date

Peter Martin

Shoppers may have opened their wallets at long last, but government spending will be cut in tonight's federal budget ... Wayne Swan in Canberra.

Shoppers may have opened their wallets at long last, but government spending will be cut in tonight's federal budget ... Wayne Swan in Canberra. Photo: Andrew Meares

THE Treasurer, Wayne Swan, will take into tonight's budget a rare piece of good economic news - Australians appear to be returning to the shops.

After 12 months in which retail spending scarcely grew at all, inching ahead less than 0.2 per cent a month, in March sales jumped 0.9 per cent, enough to restore the annual increase to a healthy 3.7 per cent.

"It's a picture of strength," said a Westpac economist, Matthew Hassan. "Despite fragile consumer confidence, an out-of-cycle rate increase, a stuttering labour market, intensifying concerns over jobs, super-cheap imported goods available online and some indifferent summer weather, something has got consumers out and shopping."

Even more impressive is the Bureau of Statistics measure of the volume of goods bought, which it calculates by subtracting changes in prices.

The bureau says in the three months to March, food sales jumped 2.5 per cent, clothing and shoe sales 3.2 per cent, and takeaway food and restaurant sales 3.9 per cent.

In each case the increase appears to have been spurred by lower prices, some dramatically lower. The bureau says food prices slid 1.8 per cent in the three months to March, clothing and shoe prices 1.4 per cent, and takeaway and restaurant food prices 0.5 per cent.

"It seems like lower prices had a lot to do with it," said CommSec's chief economist, Craig James. "There has never been a bigger fall in retail prices in 30 years. A stronger Australian dollar, cheaper food, ongoing innovation in technology goods, strong global competition and good old fashioned discounting have prompted Aussies to part with their cash again."

The rise in retail sales comes before the schoolchildren's bonus of $410 for each primary school child and $820 for each high school child due to go into more than one million bank accounts next month and the clean energy payments of between $87 and $110 per child due to go into the same accounts this month.

It also precedes the Reserve Bank's 0.50 point interest rate cut, more than half of which will flow through to lower mortgage rates.

But Margy Osmond, head of the Australian National Retailers Association, is reluctant to claim the worst is over.

"A lot depends on the budget and the way people respond to it," she told the Herald. "We used to know how people would respond to cash but they are no longer as predictable. It could be that unlike earlier stimulus packages, many people who receive the money from the government will save it, they will put it away and not spend it.

"People are saving at levels we haven't seen for 20 years. The make-up of the budget and the nature of the response to it will be incredibly important."

A National Australia Bank survey finds retailers have paid dearly for the extra sales, sacrificing margins. In the three month to April retailers' asking prices slid 0.7 per cent while their purchasing costs climbed 0.7 per cent.

The NAB index of business conditions slipped 3 points last month, reversing an earlier improvement. The NAB measure of business confidence edged up 1 point, possibly in anticipation of the Reserve Bank's rate cut.

Building approvals rebounded 7.4 per cent in March after falling 8.8 per cent in February. The Bureau of Statistics says the trend growth in private house approvals is flat, neither climbing nor falling.

The ANZ measure of newspaper and internet job advertisements slid 3 per cent in April, suggesting the labour market is weak before measures to be announced tonight.

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