More evidence yesterday that the economy is doing better than many analysts and consumers think it is.
Official figures showed that retail sales finished the year with a bang – rising at an annual rate of more than 7% in the final half of the year, while the trade account has moved back into the black – with a small deficit in November becoming a surplus and a bigger surplus reported for December.
The data release and other information this week supports the big change in Reserve Bank policy which has put rate cuts on hold, probably for quite a while, and stopped trying to influence the dollar to lose value.
In fact we will get more idea of the RBA’s changed outlook in the first Statement of Monetary Policy due for release later this morning, along with new forecasts for GDP growth and inflation.
In a note yesterday, the AMP’s chief economist Dr Shane Oliver said the latest data for retail sales, the trade balance and business confidence "add to evidence that there is light at the end of the tunnel for the Australian economy and is consistent with the RBA’s decision to leave interest rates on hold this month.
"We remain of the view that the RBA will leave rates on hold for the next six months or so ahead of rate hikes later this year as growth improves."
Australian Bureau of Statistics figures yesterday showed that retail trade expanded by a seasonally adjusted 0.5% in November, matching economists’ forecasts, after a rise of 0.7% in November and a rise of 0.5% in October. Annualised, retail sales grew 7.6% in the final quarter, the strongest rate for years.
In fact in the year to December, growth was 5.7%, a touch slower than 2012, but seeing sales growth turned negative in March and April, the rebound gathered strength as 2013 went on, led by cafes and food retailing (which saw a 2.5% rise in December alone, thanks in part to the weaker dollar and higher fruit and vegetable prices, which helped push up the CPI by more than expected).
Woolworths yesterday confirmed that with a 5.1% rise in top line sales reported for the December quarter in its core business, its Australian supermarkets and liquor operations. On a comparable store basis they rose a solid 6% for the half and 3.4% in the December quarter.
And we have already seen some solid retailer figures from Country Road and JB HI Fi, but some weak ones as well from the Reject Shop and the Super Cheap Group.
Retail sales, trade data confirm economy doing better
Source: ABS, AMP Capital
Other data is showing the economy doing better than thought. Building approvals weakened in December, but new private home approvals jumped nearly 18% in the year and all residential building approvals were up more than 21% for the year, with sold growth in the last quarter in non-private dwelling construction (apartments, etc).
House prices rose strongly in January, led by rises in Sydney and Melbourne. Lending for home building remains solid, especially to investors.
The dollar’s fall seems to be helping business confidence and conditions, but the move back above 90 USc in the wake of yesterday’s data release, will start some companies worrying. It later fell back to around 89.50c.
And the NAB’s quarterly business survey yesterday revealed that not only had business conditions improved, but business confidence had risen sharply in the three months to December.
The NAB said business confidence in the three months to December rose to its highest level in almost three years, as conditions improved, but remained just below trend.
However, the NAB said that while conditions remained weak, business investment expectations "rose unexpectedly" for the fourth quarter to around their long-run average.
And, as hoped for by the government and Reserve Bank, a strong rise in exports has pushed Australia’s trade balance into a surplus for the first time in two years in November and December.
Exports rose 4% in December as imports were up 2% to take the trade balance to $468 million.
November’s trade balance was revised from a deficit of $118 million to a surplus of $83 million. And exports and imports topped the $28 billion level for the first time in December.
Looking at the detail in the retail data, the ABS said that turnover rose in food retailing (up 2.5%), cafes, restaurants and takeaway food services (up half a per cent) and department stores (up 0.3%).
"These rises were partially offset by falls in other retailing (-3.1 per cent), clothing, footwear and personal accessory retailing (-2.1 per cent) and household goods retailing (-0.2 per cent). Over the longer term, in dollar movements, food retailing is the strongest contributor to growth (up 0.6 per cent in trend terms)," The ABS said.
"Turnover rose in New South Wales (0.9 per cent), Victoria (0.6 per cent), Queensland (0.2 per cent), Tasmania (1.8 per cent), the Australian Capital Territory (1.3 per cent) and Western Australia (0.1 per cent).
"These rises were partially offset by falls in the Northern Territory (-1.5 per cent) and South Australia (-0.2 per cent). Over the longer term, in dollar movements, New South Wales was the strongest contributor to growth (up 0.7 per cent in trend terms)."
Through the year, Australian retail turnover rose 5.7% in December 2013, seasonally adjusted, compared to December 2012. After inflation, that’s up around 3%.
The trend estimate for Australian retail turnover rose 0.6% in December 2013. This follows an 0.6% rise in November 2013. Through the year, the trend estimate rose 4.6% in December 2013 compared to December 2012.
In volume terms, turnover rose 0.9% in the December quarter 2013, seasonally adjusted, following a rise of 0.8% in the September quarter 2013.
That should be positive for the December quarter GDP figures when released in early March.
In the trade data, the ABS said: "The sum of seasonally adjusted balances for the three months to December 2013 was a surplus of $134m, a turnaround of $3,078m on the deficit of $2,944m for the three months to September 2013.
"However, if seasonal factors used in compiling the quarterly balance of payments are applied, the preliminary December quarter 2013 surplus was $82m, a turnaround of $2,760m on the revised September quarter 2013 deficit of $2,678m."
In commentary, the AMP’s Dr Shane Oliver said: "That is important to note though is that it is the eighth consecutive monthly gain and annual retail sales growth is now running at 5.7% which is the best outcome since November 2009.
"In other words retail sales growth looks to be breaking out of the malaise that it’s been in over the last four years that saw annual growth average just 2.7%.
This likely reflects a combination of improved household finances on the back of low interest rates, rising wealth levels and improved consumer confidence. This is great news for retailers after a really tough period.
"We expect these factors to support continued strength in retail sales this year, but probably averaging around 4.5% pa as a return to pre-GFC strength is unlikely as the labour market remains soft."
And he said the "December trade data was much better than expected with a surplus of $468 million following a revised November surplus of $83m which was the first since December 2011.
"While the December surplus was exaggerated by a huge bounce in grain exports, the broad improvement in the trade balance after hitting a trade deficit of $3.1bn in November 2012 is very positive.
"Going forward the combination of reduced mining and energy related capital goods imports (as the mining investment boom winds down) and increasing resources exports (as the new mines and energy projects come on stream) are likely to drive further surpluses ahead."
