Retail sales data adds weight to case against rate rise: Economy roundup
Friday, 2 May 2008
James Thomson
Retail sales for March increased by 0.5% in March, above the market forecast of 0.3%. This follows a decrease of 0.1% in February 2008 and a revised no-change in January 2008.
But the headline figure disguises weakness across the retail sector; all sub-sectors, except the food retailing sector and household good retailing sector (which both posted seasonally adjusted increases of 1.7%), had a decrease in the seasonally adjusted estimate in March.
TD Securities strategist Josh Williamson says the underlying message in the retail figures is that the economy is slowing.
"Higher prices of staples are forcing consumers to change their spending habits and knocking back a lot of discretionary expenditure, and that is putting a break on the economy. The RBA will think about that when it makes its decision on rates and certainly we see no extra risk of a rate hike in May," Williamson says.
Combined with yesterday’s 5.7% drop in building approvals, today's result will add pressure to the Reserve Bank to leave rates on hold when it meets next Tuesday. Indeed, Westpac’s new chief executive Gail Kelly predicts the next interest rate movement is likely to be down, although that may not occur for 18 months.
The credit crunch is likely to have a big impact on the next movement in rates. Satyajit Das, a derivatives expert who warned of a global slowdown in credit markets two years ago, told a Financial Services Institute of Australia event that tight credit conditions have some way to run. “It’s a matter of years, not a matter of months.”
On the market's today, a strong lead from the US overnight and support for banking stocks has pushed the S&P/ASX 200 up 1.7% on yesterday's close to 5678.6 at 1pm.
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