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Australia's consumer spending sends upbeat message as RBA meets
July 4, 2017 / 2:43 AM / 3 months ago

Australia's consumer spending sends upbeat message as RBA meets

* May retail sales up 0.6 pct vs 0.2 pct forecast

* Clocks best two months of sales since end-2013

* Sign that economy gathered speed after dismal Q1 growth

* RBA policy meet later in the day, likely to stand pat on rates

By Swati Pandey and Wayne Cole

SYDNEY, July 4 (Reuters) - Australian retailers enjoyed another strong month of sales in May as shoppers splurged on household goods, a sign that the economy picked up speed after a disappointing first quarter and that the consumer sector still has some momentum.

The Australian Bureau of Statistics’ data on Tuesday showed retail sales rose 0.6 in May, beating expectations for a meagre 0.2 percent increase. It also follows a solid 1.0 percent jump in April, marking the best two months of sales since end-2013.

The data will comfort the country’s central bank which had feared ballooning debt in the red-hot property sector was pinching consumers’ ability to spend elsewhere in the economy.

The Reserve Bank of Australia (RBA) holds its July policy meeting later in the day and is expected to keep the benchmark cash rate at an all time low of 1.5 percent, where it has been since August last year.

“Two firmer months together do suggest the consumer was doing more of the heavy lifting when it comes to economic growth in the second quarter,” said Michael Blythe, chief economist at Commonwealth Bank.

But “the fundamentals are still poor -- people are worried about losing their jobs or ever getting a wage rise. So it’s hard to say this is a definitive turning point.”

However, economists say the RBA will stick to its neutral stance as household debt to disposable income was at a record high 190 percent, which is high by any standard.

And while the labour market was showing some signs of improvement, wages growth remains stuck at its slowest pace ever.

All eyes will be on the post-meeting statement for any hint of hawkishness given central banks in Europe and Canada had surprised recently by talking of the need for tighter policies.

“The market is on the hunt for a hawkish signal,” said Daniel Been, head of forex research at ANZ.

“We do not think that the RBA will satiate them. The economy is still running at levels just above stall speed... We think the RBA is comfortably on hold and will not want to send a signal to the contrary. AUD bulls beware.”

Thursday’s data shows a solid 2.2 percent gain in household goods retailing, 1.3 percent rise in footwear and personal accessory retailing while cafes, restaurants and takeaway food services were up 0.6 percent.

An index of online retail sales rebounded in May to be up 1.3 percent following a contraction the month before. Annual growth stood at 7.9 percent in May, more than twice the 3.8 percent for traditional retailers.

Australians also splashed out on big ticket items such as cars - sales of new vehicles rose by the most in 11 months in May to an all-time peak, led by insatiable demand for sports utilities. Strong sales of transport vehicles also hinted at a much-needed pick up in business investment. ($1 = 1.3041 Australian dollars) (Editing by Sam Holmes)

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