The Economy: Another Solid Retail Sales Report

More evidence the Australian economy is better placed than all the business and consumer sentiment surveys have been suggesting.

Retail sales data for August, released yesterday; show that the important sector isn't the basket case that so many retailers and analysts have claimed.

It certainly isn't booming, but nor is it in recession. In fact it's a little bit warm, and a little bit cool in places and actually running at a solid pace.

The latest monthly retail sales data from the Australian Bureau of Statistics this morning shows that Australian retail turnover rose 0.6% in August, seasonally adjusted, following a rise of 0.6% the previous month and a fall of 0.1% in June.

Market economists' forecasts had centred on a 0.2% rise in retail sales in August, which is another miss as they completely underestimated the surge in exports and the trade surplus and big rise in building approvals...

The ABS said retail trade rose in the month to a seasonally adjusted $20.813 billion, compared to an upwardly revised $20.679 billion in July.

So that's two successive months where retail growth has been a solid, unchanged 0.6%?

The rise in August was across all states and most sectors of retailing, except for department stores (listen for the squeals from Myer and David Jones) and operators in the clothing and footwear segments.

It came after data out on Tuesday showed a surge in exports in August to a record $28.3 billion and the second highest trade surplus on record of $3.1 billion (and a good chance of that being repeated in September, thanks to the fall in the value of the Australian dollar).

As well, there was an 11.4% rise in building approvals, thanks to a sharp jump in approvals of apartment blocks, but another 1% dip in private home approvals.

And then the RBA trailed a very big hint that interest rates could fall at the Melbourne Cup Day board meeting because inflation seems to be easing and so long as the September quarter CPI, out October 26, comes in with a moderate reading (which seems to be on the cards given the fall in fruit and vegetable prices and a fall in the June quarter CPI after some revisions).

But it is now quite clear that the domestic economy isn't as weak as many economists and rate cut urgers had insisted it was.

As the June and March quarter national accounts revealed, domestic consumption is still running at a solid 3% or more which is not a sign of a recession, even if there are slow spots in some parts of retailing, housing and manufacturing.

And while figures out on Monday showed manufacturing activity contracted again last month, the same survey for the services sector (a far bigger part of the economy) showed a small expansion last month.

And then there's the nature of yesterday's retail data, which will confuse the 'Rate Cut Looms" enthusiasts, as well as those retailers, unions and their mates in the media and economists who reckon the domestic economy is weak and operating in a multi-speed fashion.

The ABS data shows that turnover rose in Household goods retailing (1.7%), Food retailing (0.6%), Cafes, restaurants and takeaway food services (1.2%) and Other retailing (0.3%). Turnover fell in Department stores (-0.8%) and Clothing, footwear and personal accessory retailing (-0.3%).

Turnover rose in New South Wales (1.0%), Queensland (0.5%), Western Australia (0.9%), Victoria (0.3%), South Australia (0.6%), Tasmania (0.8%) and the Australian Capital Territory (0.3%). The Northern Territory (0.0%) was relatively unchanged.

Retail sales growth in the three months to August is now running at a solid 4.4%, which isn't boom-like, nor is it a recession.

And the retail sales figures do not include the strongly growing overseas travel sector, or car sales. Both offshore travel and car sales are at or near record levels of activity.

The sharp fall in the US dollar in the past two months doesn't seem to have impacted retailing yet, but it may show up in September and October data with the currency down 14%-15% from its peak in late July.