Retail spending holds up on wave of optimism
RETAIL sales and job figures yesterday bolstered confidence that strong domestic demand can help keep Australian corporate profits healthy this year.
November retail sales rose by 0.8 per cent above October’s figure, as consumers kept spending.
This was despite an interest rate hike, market turmoil and higher living costs.
The spending jump easily beat the 0.5 per cent average analyst forecast, as strong gains in the hospitality, clothing and some retail sectors made up for softer department store and recreational goods sales.
November quarter labour market data, also released yesterday, shows the jobs picture remains tight.
The Australian Bureau of Statistics said the vacancy rate soared 6 per cent to record highs, meaning there are now fewer than three unemployed people going for every vacant job.
The retail sales and jobs data were seen as intensifying the Reserve Bank’s inflation concerns, raising the likelihood of a quarter-point increase in the official cash rate to 7 per cent early this year, despite arbitrary moves in recent weeks by some major lenders.
But UBS economist Adam Carr said while interest rate increases early this year should moderate the pace of 2008 domestic growth, tax cuts and strong jobs growth, coupled with buoyant income, should help ensure consumer spending held up well.
Shares in retailers fell on concerns of another interest rate rise. Harvey Norman lost 31? to $6.18, David Jones 11? to $5.13, Woolworths 70? to $32.33 and JB Hi-Fi 26? to $13.68. Coles-owner Wesfarmers lost 89? to $39.09.
CommSec analysts said retail spending could be expected to slow “somewhat” over 2008 in response to higher living costs but agreed the key supports of strong job and population growth would underpin domestic consumer spending.
CommSec chief equities economist Craig James said the retail data and job market strength showed an Australian economy “going gangbusters”, with consumers effectively teflon coated, with no bad news sticking.
He said the strong November retail sales data reinforced optimism and there was “more than enough” domestic strength to keep corporate profits in Australia strong despite the weaker US economy and uncertain implications for global growth.
“November had everything – higher food prices, a rate hike and a federal election but still consumers kept spending,” Mr James said http://payday-z.com. “And it’s not hard to see why. The job market is the strongest in a generation, wages are rising and spending levels are being boosted by the biggest migration boom in Australia’s history.
“The positives . . . have been more than enough to outweigh negatives of rising housing, petrol and food costs,” he said.
Analysts widely expect the Reserve Bank to raise the official cash rate early this year to slow the economy’s pace and prevent overheating.
But the jury is out as to whether it will boost the official rate to 7 per cent at its February 5 meeting or wait for more clarity on the outlook for global growth, given US recession fears.
Westpac senior economist Matthew Hassan said crucial to the RBA’s thinking would be the scale of the US slowdown amid fears the general economy there is being engulfed in the crisis that began with the collapse in mortgage loans to high-risk borrowers.
“The strength of inflation here would normally have drawn a rate rise and the retail sales data reinforce the RBA’s tightening bias, but the timing is still uncertain,” Mr Hassan said. “There are still dark clouds over the global economy.”
The Reserve Bank of Australia upped rates by a quarter of a point at its August and November meetings.
But it stayed on the sidelines in December, saying while it was concerned about inflation there was the potential that higher borrowing costs and international economic uncertainty could act to curb inflationary pressures.