Economy 1: Retail Sales Fall, Building Down, Up

No rate rise today, and possibly not in August.

As we pointed out yesterday, the Reserve Bank will sit pat today and will use the June quarter CPI as a measuring stick for the next rate rise (as well as employment data for June, which is out this week).

But don't be surprised if the bank sits on its hands in August, even if inflation is higher than expected for the June quarter.

In fact the ANZ Bank, which had been looking for two rate rises this year, said yesterday it now thinks one might happen by early in 2012.

The economy is running out of tune, which is difficult for a lot of companies, but what the RBA wants to see.

The May retail sales were a big swing into the negative from April's equally surprising big rise.

But the 0.6% fall in seasonally adjusted terms in May, was the biggest drop since last October.

The retail sales and building approvals figures for the month of May were weak, much weaker than economists had forecast.

Clearly the economy continues to run ragged; like a car engine, it needs a good tune up, but an interest rate increase isn't the answer.

Retail sales saw a 0.6% fall in May as most sectors did it tough, especially department stores, and reversed the solid 1.2% jump in April (revised up from the original 1.1%).

And building approvals fell 7.9%, thanks to a big fall in non-private dwellings, which remains a volatile and confusing part of this series.

And figures out yesterday showed a pick up in the number of job ads (see separate story) and a private inflation survey showed no change last month.

Economists had been expecting retail sales to increase 0.3% in May and economists had expected a 0.7% fall in building approvals.

While approvals to build private dwellings rose 0.7%, they are still 14% lower than a year ago, an indication of the slump in the sector.

Looking at the retail sales figures from the Australian Bureau of Statistics, turnover fell in Other retailing (-1.6%), Food retailing (-0.4%), Clothing, footwear and personal accessory retailing (-1.8%), Department stores (-1.4%) and Household goods retailing (-0.2%).

Turnover rose by 0.4% for Cafes, restaurants and takeaway food services.

The ABS said the fall in Australian retail turnover was driven by a 1.2% drop in NSW, a 1.1% fall in Victoria, 0.7% in South Australia, 0.6% fall in Canberra, and a drop of 0.2% in Tasmania.

Queensland was flat and sales rose 0.8% in WA and 0.1% in the Northern Territory.

One word of warning: the retail sales figures have become a bit volatile of late, so it wouldn't surprise to see a bounce back in June.

The building approvals are equally volatile; thanks to the up/down private sector non dwelling approvals which can rise and fall by 20% and more in a month as councils and other local government bodies delay or bring forward approvals.

The ABS said yesterday the 7.9% fall in total dwelling approvals in May followed a 0.3% drop in April (revised up from the 1.3% fall originally reported).

Private sector dwelling approvals rose 0.7% to 7,814 houses, after a 2.3% drop in April (revised up from a 3.3% fall originally reported).

That's a slightly more positive outcome, but May's figure is still 11.4% down from May 2010.

Private sector other dwelling approvals are 0.3% lower than a year ago after the 20.1% drop in May.

April's rise of 7.9% in this category was trimmed to 6.5% in the May report.

Dwelling approvals fell in May in Victoria (-18.5%), NSW (-15.6%) and Tasmania (-0.4%) while South Australia (+5.7%), WA (+3.0%) and Queensland (+1.2%) recorded increases in seasonally adjusted terms.

In seasonally adjusted terms, approvals for private sector houses rose 0.7% in May with rises in Victoria (5.2%), New South Wales (3.0%) and South Australia (1.5%) while there were falls in Western Australia (-8.2%) and Queensland (-1.4%).

The value of total building approved fell 2.8% in May in seasonally adjusted terms.

The value of total residential building fell by 2.7%.

What will be interesting to watch for is any updates/downgrades from June 30 balancing retailers in the next few weeks ahead of the reporting season.