Put the glasses away, interest rates are going up next week after the Reserve Bank board meeting on Tuesday. Another month of strong retail sales shows consumers haven't lost their appetite for spending, despite the rate rise in August and the uncertainty about the credit freeze and more interest rate rises.
Westpac Bank's chief executive, David Morgan, said yesterday he believes "a couple more" interest rate rises are likely.
The bank reckons there could be a second in the new year, but some economists reckon the RBA might give us the unwelcome Christmas gift of a second successive increase to 7%, in early December.
The Australian Bureau of Statistics said yesterday that retail sales jumped a seasonally adjusted 0.8% in September, to be up 1.9% over the three months to the end of September. On an original basis retail sales rose 7.2% over the year to September, not as fast as earlier in the year but solid enough.
The ABS said it was actually the fourth monthly gain in sales in succession; while the trade picture softened on imports of more consumer goods (driven by the stronger dollar).
Harvey Norman reported that first quarter sales rose just over 12%, a rate slower than the 15% in the last quarter of the 2007 year ended June 30. But the company is expecting record first half earnings, as is its smaller rival, JB Hi-Fi which says first quarter sales rose at a 'double digit rate' and the company is on track for a 33% rise in sales over the year to next June.
Fantastic Furniture and fashion retailer, Noni-B reported much more sedate sales conditions, and next Wednesday David Jones is expected to report another quarter of strong sales growth.
On Wednesday, ABS figures showed that building approvals jumped to a 14-month high in September, driven by a surge in apartment and flat approvals (housing was weak) while Reserve Bank lending figures showed boom-like growth in business lending but much slower increases for personal and housing ending .
The ABS said "The seasonally adjusted estimate of turnover for the Australian Retail and Hospitality/Services series increased by 0.8% in September 2007. This follows a revised increase of 0.8% in August 2007 and an increase of 0.8% in July 2007.All states and territories except Tasmania (-1.1%) and the Australian Capital Territory (-0.3%) had increases in the seasonally adjusted estimate. The largest increase occurred in Queensland (+1.2%).
"There has been moderate trend growth for 23 months. Clothing and soft good retailing (three months) and Hospitality and services (nine months) have had moderate growth. Food retailing (11 months), Household good retailing (three months) and Other retailing (four months) have had strong trend growth.
"After seven months of moderate growth, Department stores had weak trend growth in August 2007.
"In original terms, Australian turnover increased by 7.3% in September 2007 compared with September 2006. Chains and other large retailers increased by 9.2%, while 'smaller' retailers increased by 4.9%."
The balance of goods and services was a deficit of $1.862 billion, seasonally adjusted, in September, which was up from $1.665 billion in August, according to the ABS.
Exports fell 4% in adjusted terms, while imports fell 3%.
Economists were taken by surprise as they were expecting the deficit to fall to around $1 billion in September.
Some said the stronger dollar may be to blame, but others said the reason appeared to be a lack of performance of our big mineral exporters who are still constrained by serious under capacity of all forms of infrastructure.
HSBC chief economist, John Edwards, said Australia's export performance had been weak, despite the current commodities boom. "Our exports are growing much more slowly than Australia's GDP (gross domestic product). Drought is part of it but the majority cause seems to be that we haven't been able to increase … our exports of metals, minerals and energy due to the capacity constraints."
Strong retail sales and stronger business investment are dragging import volumes higher, while the capacity constraints are limiting export growth.
Those constraints are putting pressure on resources and prices, and that's a 'no-no' from the RBA's perspective.
So the trade figures are a negative for interest rates.
The markets yesterday supported the 0.25% cut in the Federal Funds rate by the Fed to 4.5%, but it lacked the enthusiasm of the reaction after the cut in September.
The US dollar fell, the Aussie rose, gold surged over $US800 an ounce, and oil jumped past $US96 a barrel in after hours trading for the West Texas Intermediate marker crude traded in New York. Oil retreated to around $US93.50 a barrel and gold is down to just under $US794 an ounce and the Aussie dollar is under 92 US cents.
