Christmas sales hopes up as rate holds steady

DAVID UREN
DECEMBER 04, 2013
THE AUSTRALIAN

CONSUMERS are spending again, raising hopes for the Christmas sales period and economic growth next year.

The 0.5 per cent rise in retail sales in October, reported by the Australian Bureau of Statistics yesterday, was the third successive month of healthy growth and follows the jump in consumer confidence after the federal election and the last interest rate cut in August.

The Reserve Bank yesterday held its benchmark cash rate steady at the record low of 2.5 per cent for the fourth successive month, governor Glenn Stevens declaring the dollar, worth US90.7c yesterday, still “uncomfortably high”.

However, the revival in consumer spending along with a healthy lift in exports as new resource projects come on stream has economists revising up their estimates for growth.

Deutsche Bank chief economist Adam Boyton said today’s national accounts could show GDP rose as fast as 1.1 per cent in the September quarter, which would be the fastest growth since early last year and would force both the RBA and Treasury to review their pessimistic outlook for the coming calendar year.

Most bank economists still expect a figure closer to 0.7 per cent, which would still show the economy is emerging from the slowdown experienced in the first half of this year.

Retail sales are now recording annual growth of 3.6 per cent, which is slightly above the average growth of the past five years and marks a big improvement from June, when annual growth had slumped to just 1 per cent.

ANZ economists Savita Singh and Justin Fabo said retail sales were not only being helped by low interest rates, but also by the fall in the value of the Australian dollar. The October retail sales for fashion retailers were 7.4 per cent ahead of the same period last year, while people spent 5.7 per cent more on eating out. Food retail sales were 3.6 per cent ahead of a year ago, while household goods were up 2.2 per cent. Department stores remain the laggard, with growth of only 1.3 per cent.

Sales are recording reasonable growth around the country, except in Western Australia, where sales are up by a bare 0.2 per cent over the past year.

Barclays chief economist Kieran Davies said most analysts had assumed that spending would remain very modest over the next year or so.

Although higher house prices may encourage some lift in spending, wage and employment growth remains very subdued. There has been no rise in the numbers of people with jobs since February while wage growth is at the lowest level in more than a decade.

“However, some business surveys are pointing to an improved outlook for the labour market next year, which raises the possibility that consumer spending might do better than currently forecast,” Mr Davies said, noting that household spending accounts for more than half of national GDP.

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