As the Australian resource boom wanes, the country's policymakers have been hoping non-mining sectors would start to assert themselves. With interest rates at historic lows, the housing sector has been one area of obvious strength, though there are concerns that a bubble could be developing.
Surprisingly, the latest retail sales data suggest that this sector could be another source of strength for the economy, as well as yet another hopeful sign that the country's sluggish economy is finally regaining momentum.
This week, the Australian Bureau of Statistics (ABS) reported that January retail sales rose a seasonally adjusted 1.2 percent month over month, to AUD22.9 billion, trouncing the consensus forecast of 0.4 percent. And December's number was revised higher by two-tenths of a percentage point, to 0.7 percent. On a year-over-year basis, retail sales were up 6.2 percent.
This was the ninth straight month in which retail sales have risen and the third consecutive month in which the percentage increase has been equal to or greater than the preceding month. Over the past three years, retail sales growth has averaged 0.3 percent monthly growth, while over the trailing six months it's averaged 0.8 percent monthly growth.
So clearly this upward trend, which we first wrote about in early January, has been sustained. The question is whether consumers will continue spending at this pace. While Australia's unemployment rate, which rose to 6.0 percent in January, is enviable from our perspective, it's actually at a 10-year high. And the Reserve Bank of Australia (RBA) expects unemployment to continue rising in the near term.
As evidenced by a recent sentiment survey, consumers are worried about their job security, which could constrain spending in the months ahead. The Westpac-Melbourne Institute Index of Consumer Sentiment declined by 0.7 percent in March, to 99.5. That's its lowest re! ading since last May, and well off the euphoria (or, more likely, relief) that coincided with the country's federal elections in September, when the index had a reading of 110.63.
The sub-index that gauges consumers' outlook for the economy over the next 12 months continued to decline, falling 4 percent month over month. Westpac notes that this measure is now down 21.8 percent year over year, at its lowest level since December 2011, at the height of the European sovereign-debt crisis.
While sentiment is rosier regarding improvement in family finances over the past year, again the outlook shows concern about the year ahead, with this sub-index down 7.1 percent year over year. However, Westpac says this measure, as well as the one concerning whether the time is right to buy a major household item, have both been relatively resilient in recent months compared to the overall sentiment index, even if both have eroded during that time.
This suggests that the gloomy near-term view of the economy has yet to translate into greater caution regarding spending.
To be sure, sentiment tends to be a lagging indicator, as respondents' views are often formed by extrapolating the recent past into the future. However, this survey was taken in early March, while the retail sales data we're analyzing are from January, so the positive trend in retail sales could have at least a short-term hiccup.
On the other hand, the strength in retail sales has been broad-based, particularly with regard to discretionary spending. Spending on restaurants and take-out rose 2 percent sequentially, and sales at department stores were up 2.6 percent. Spending on household goods was also robust, with sales increasing by 1.5 percent.
Still, despite the duration of this trend, analysts remain cautious about the latest data, in part because of seasonality. For instance, JPMorgan analyst Ben Jarman attributed the surprise result to a boost from the timing of payments from the federal government.
But! when vie! wing these data in tandem with the upside surprise from fourth-quarter gross domestic product (GDP) growth, there's at least a kernel of hope that growth in the year ahead could continue to outpace muted expectations.
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