Warren Buffett“A public opinion poll is no substitute for thought.”
Adlin Sinclair“Success is a welcomed gift for the uninhibited mind.”
Retail sales in Australia declined for the first time in five months
Thu, Feb 4 2010, 03:27 GMT
by ecPulse.com analysis team
A report today showed retail sales in Australia unexpectedly dropped for the first time in five months as loan repayments increased after the Reserve Bank raised interest rates three straight meetings in October, November and December. Policy makers may decide keeping borrowing costs unchanged next month to avoid more pressures on household spending that was the main pillar for recovery last year.
Retail sales in Australia dropped 0.7% in December after it gained a revised 1.5% from 1.4%, while it was projected to gain 0.2%. Retail sales excluding inflation jumped 1.1% in the fourth quarter following a drop by 0.4% that was revised to -0.7%, and it came inline with forecasts.
However, the drop in retail trade followed the reserve bank’s decision to raise interest rates by 25 basis points in December to 3.75% that came after two similar decisions in October and November. Higher borrowing costs raised the average mortgage repayments that caused a pressure on households to delay purchases and cut spending.
Household spending that account for 60% of the Australian economy was the main pillar for economic recovery last year and it supported the economy to skirt technical recession when it expanded 0.4% in the first three months of last year. Economic growth slowed to 0.5% in the third quarter from a year earlier after the GDP grew a previous 0.6%.
Raising interest rates is affecting spending levels negatively and the impact of the government’s stimulus measures faded which is making it worse for the household sector. Yet, households are founding support from Australian companies that turned to higher more workers in the second half of 2009 helping to ease deteriorations in the labor market.
Moreover, unemployment rate unexpectedly declined to 5.5% in December and employers added 35.2 thousand jobs, higher than the forecasted 10.0 thousand, as signs of improvements in consumer demand and exports are encouraging companies to raise their forecasts concerning earnings and sales this year.
Consumer confidence rose the most in six months in January alongside better conditions in the labor market and all economic sectors. Retail sales may show further improvements in case the jobless rate continued to decline, but spending levels may drop if the central bank raised interest rates next month which is not highly anticipated.
A separated report released today showed building approvals jumped 2.2% in December less than the revised 10.4% from 5.9%, but it came better than analysts’ estimates of 0.0%. Building approvals gained 53.3% in December from a year earlier after climbing a revised 40.5%.
The housing sector is performing well at the current stage especially that the government’s grants helped to spur demand in the properties market, despite borrowing costs increased. However, we are having fears about a housing boom this year that may accelerate inflation and force monetary policy makers to raise interest rates.