SYDNEY (Reuters) - Australian retail sales rose for a second month in July as consumers rediscovered department stores while dining out more, a promising start for both consumption and economic growth in the third quarter.
Thursday’s figures from the Australian Bureau of Statistics showed retail sales rose 0.4 percent in July to a record A$23.3 billion (13.24 billion pounds). That built on a 0.6 percent increase in June and marked the best two months so far this year.
That was a welcome step-up from the previous few months when consumer caution over an unpopular government budget combined with mild autumn weather to knock sales flat.
The improvement is important as the A$270 billion retail sector accounts for 17 percent of Australia’s A$1.6 trillion in annual gross domestic product (GDP) and is the second-biggest employer, providing 10 percent of all jobs.
It suggests household spending started the current quarter on firmer footing and augured well for faster economic growth. Data out on Wednesday showed the economy expanded by a moderate 0.5 percent in the second quarter, though growth for the year was still a solid 3.1 percent.
“A better start to Q3 is appearing from the likes of business and consumer confidence, hints of better consumer spending and a solid pipeline of dwelling investment activity ahead,” said David de Garis, a senior economist at National Australia Bank.
Double-digit gains in home prices have helped boost consumer wealth, giving them the confidence to spend in the face of subdued wages growth. The ABS estimates the total worth of Australia’s homes ballooned by A$493 billion in the year to June, or more than A$50,000 for each and every household.
However, the upward spiral in values is stretching the patience of the Reserve Bank of Australia. Governor Glenn Stevens this week warned that further cuts in rates would be fruitless if all they did was inflate already elevated prices.
The broadside led investors to further widen the odds on another easing, with a move by Christmas put at a one-in-six chance <0#YIB:>.
Prices are also on the RBA’s mind when it comes to resource exports, but rather because they are sliding. Iron ore, Australia’s single biggest export earner, hit a five-year low this week having fallen 36 percent so far this year.
The impact has been ruinous for the trade account with the country recording a deficit of A$1.36 billion in July, the fourth straight monthly shortfall north of A$1 billion.
The decline in prices is partly because Australian miners are shipping more, having spent years and tens of billions of dollars expanding production.
Exports of iron ore to China from Port Hedland, which handles roughly a fifth of the world’s seaborne trade, were up no less than 43 percent in August on a year earlier.
The major Australian miners are blessed with much lower production costs than many of their competitors and are essentially flooding the market with ore to gain market share.
This expansion in export volumes is a boon for the headline measure of inflation-adjusted GDP, but cannot fully offset the damage done to national income from falling prices.
That effect is caught by real net national disposable income which actually contracted by 0.2 percent in the second quarter, to be up just 1 percent for the year.
Editing by Eric Meijer