No rate cuts today and unless there’s a significant worsening in the economy, or an external shock in the next few months, it increasingly looks like we have seen an end to the Reserve Bank’s easing policy.
The news saw a small rise in the value of the Aussie dollar yesterday to just under 95 USc, up more than half a cent.
The news though didn’t help the sharemarket – futures trading promised a 20 point plus gain, but that fizzled in the afternoon and the ASX 200 lost just over 11 points.
That was more down to a weak reception for the Westpac profit which offset gains for retailers after the better than expected retail sales data for September.
Job ads eased – but they have been weak for much of the past nine months, house prices rose strongly, especially in Sydney, and inflation seems to be benign.
Retail sales
Sales growth in September did better than expected and ended the quarter with a bang, as the Reserve Bank suggested in the minutes of the October meeting last month.
The Australian Bureau of Statistics data showed seasonally adjusted retail sales rose 0.8% in September, to be up 0.7% for the quarter in volume terms, which is far stronger than the second quarter when sales growth fell 0.1% according to revised data yesterday (the original report was no increase in the quarter).
The market guesstimate for the quarter was a gain of just 0.2%.
The headline rise was double the 0.4% guesstimate from the market.
In fact the 0.4% rise in seasonally adjusted sales in August was revised up to 0.5% as well in yesterday’s release.
On a trend basis sales rose 0.3% in September, after a similar rise in August and 0.2% in July.
At an annual rate retail sales grew 2.9% from September 2012, up from the 1.1% rate in 2012-14 and getting back to the 3.2% annual rate in the first quarter of the year.
Australia Retail Sales YoY – No rate cut after retail sales bounced in September
The rise in retail sales was the fifth in a row and was led by solid performances in NSW and Queensland, but Western Australia saw another fall.
The ABS report showed that spending at department stores rose a seasonally adjusted 2.8% in September, while clothing sales rose by 2.5%. Sales of pharmaceuticals, cosmetic and toiletries grew 3.1%, and sales in cafes and takeaway foods was up 0.6%. But sales of household goods fell 0.4%.
The news helped boost the share prices in some of Australia’s biggest retailers with David Jones shares up 4.5% to $3.03, Myer up 2.5% to $2.56, and JB Hi Fi shares ended up 2.1% at $21.58.
Harvey Norman shares rose 1.2% to $3.27 after it told the market in its quarterly report that "we have not seen a boost to consumer spending post the federal election but look forward to a good Christmas trading period".
The company said like for like sales rose 4.3% across its global operations for the three months to September 2013. Like for like sales in Australia rose 2.9% in the quarter, faster than the 1.2% rise in top line sales growth. Sales growth was helped by favourable currency changes for the company.
Harvey Norman, which has operations across Australia, New Zealand, Slovenia, Croatia, Ireland and Northern Island also said that from July 1 to September 30 it earned a profit before tax and minority interests of $58.2 million, up 16.2% over the previous corresponding period.
Some economists put the better than expected retail sales performance down to a post election bounce, but seeing Harvey Norman, Woolies and Coles all say they haven’t seen such a rise, that’s fanciful. Coca Cola Amatil was another to reject the idea of a post election bounce.
Other analysts say the rise in house prices, especially in Sydney and Melbourne, is helping make consumers feel more confident.
Property
The ABS’s measure of capital city house prices rose 1.9% in the September quarter and a 7.6% rise year on year, thanks to a strong performance in Sydney but with some other cities seeing strong gains too.
In the same period, prices in Australia’s largest property market, Sydney, jumped 11.4%, while Melbourne gained 6.8% and Brisbane 4.1%.
The ABS pointed out that, "This is the first time since 2010 that the capital city average has shown four consecutive quarters of growth year on year.
"Sydney’s rises were broad based in the September quarter, with most areas going up, but prices were mixed in Melbourne, with some areas showing rises and others falls."
Sydney recorded the strongest growth at 3.6% for the September quarter. Melbourne prices rose 1.9%, Hobart by 1.4%, and Brisbane by 1.2% House prices also rose 0.2 % in Perth and 0.4% in Darwin.
In contrast RP Data Rismark survey showed annual house prices rose 12.6% in the 12 months to October.
Jobs
Ahead of Thursday’s jobs data for October, the ANZ job ads survey showed a fall of 0.1% last month, after a rise of 0.2% in September.
And the TD Securities/Melbourne Institute Inflation Gauge remained weak in October, up just 2.1% year on year at a headline level and just 2.2% year on year for the trimmed mean (which was around what it was in the September quarter CPI report).
Takeaway
The AMP’s chief economist Dr Shane Oliver said yesterday’s "data for retail sales, house prices and job ads provides more evidence that interest rate cuts are working and that activity in the non-mining sectors of the economy is on the mend.
"There is definitely no need for another interest rate cut on Melbourne Cup Day and we remain of the view that we have now seen the low point for interest rates and that the next move is up.
"However, with inflation remaining benign, the RBA has plenty of flexibility and, given the need to avoid pushing up the $A and to see a further pick up in non-mining activity, a rate hike is unlikely until around September/October next year."
Footnote
And finally, in yesterday’s retail sales report, the ABS pointed out that retail sales are no longer the best guide for what consumers are spending their money on, with department stores no longer any sort of guide.
The ABS points out, retail trade estimates historically contributed 55% to 60% of household final consumption expenditure. Now it’s only about 30% as households spend a greater proportion of their income on services, or utilities, communications (mobile phones and the internet), plus money on internet purchases here and offshore (which are slowly being identified), houses, education, and travel.
The takeaway from all the data is that the economy is doing better, but not fabulously so. The jobs data on Thursday is the next big test. But before we go gaga over the retail data, let’s see it repeated through the end of the year before breaking out the bubbly.
