The problems in the Australian economy were on full display yesterday, helping explain the RBA rate cut and the sluggish GDP reported later today.
Three hours before the RBA cut the cash rate by 0.25% to 1.25% we got a data dump from the Australian Bureau of Statistics that revealed:
a) Australian retail turnover surprised with a fall in April of 0.1% – the second in five months; the market had been looking at a rise of 0.3%.
b) The March quarter current deficit fell sharply, thanks to the highest trade surplus ever recorded in a quarter. That will add 0.2 percentage points to the GDP data due out at 11.30 am today which was stronger than expected.
It was the largest goods and services surplus on record at $13.6 billion, according to the ABS. That helped cut Australia’s current account deficit in seasonally adjusted terms by $3.4 billion to $2.9 billion in the March quarter 2019.
c) Government financing data showed a 0.2 of a percentage point contribution to GDP from public demand, stronger than expected.
d) The booming trade account, weak dollar and high prices for iron ore saw our terms of trade rise 3.1% in the March quarter. That was unchanged from the first estimate for the December quarter and why nominal GDP will be solid in the national accounts report later today.
Of yesterday’s releases, the April retail sales data was the most important measure of household consumption for the June quarter and it wasn’t very good, illustrating why the RBA cut rates yesterday and will cut again later in the year.
The fall of 0.1% (seasonally adjusted) followed a rise of 0.1% in March (The March quarter retail sales will detract 0.1% from GDP in volume terms, according to the ABS). The previous fall was 0.4% in December of last year.
Looking at the performance in April there were falls in Household goods retailing (-0.9%), Cafes, restaurant and takeaway food services (-0.7%), and Clothing, footwear and personal accessory retailing (-1.2%), which were offset by rises in Other retailing (0.8%), Department stores (1.8%), and Food retailing (0.2%).”
In seasonally adjusted terms the ABS said “there were falls in New South Wales (-0.4 percent), Victoria (-0.4 percent), the Northern Territory (-0.5 percent), and the Australian Capital Territory (-0.2 percent). There were rises in Queensland (0.7 percent), South Australia (0.6 percent), Western Australia (0.1 percent), and Tasmania (0.3 percent).”
The trend estimate for Australian retail turnover rose 0.2% in April 2019, following a 0.2% rise in March 2019. Compared to April 2018, the trend estimate rose 2.9% (down from 3.0% in March).
Online retail turnover contributed 5.7% to total retail turnover in original terms in April 2019, which was unchanged from March 2019. In April 2018, online retail turnover contributed 5.4% to total retail.
That’s not much of a rise and analysts say online retailing is being hit by the same factors as those dampening retail sales – weak household income, falling house prices, and weak inflation.
Economists say GDP for the quarter could be as high as 0.6% and 1.9% or 2% annual, which is a bit better than forecast last week.
