By Greg Peel

Retail sales fell by 0.1% in June to be up 1.4% annually on a nominal basis. On a trend basis, sales are up 0.1% month on month and 1.7% year on year. This, notes ANZ, is the weakest annual trend in the history (1983) of the data.

Judging by profit downgrades in the retail sector recently, and anecdotal claims of minimal end-of-year sales crowds, such a result should not be a surprise. However, after a 0.6% drop in sales in May economists were looking for 0.4% growth in June. It's the department stores that are really hurting. They saw a sales drop of a whopping 3.2% for month, meaning everyone else netted a 0.1% rise.

On a price basis, the data showed second quarter retail inflation is trending lower than the CPI. This should not be a surprise, notes CBA, given retail sales represent only around a third of all household spending. We might be coughing up for temporarily expensive food items but we're also copping utility price increases and increases for government services such as childcare, which are not "retail" items. And it's not that we're not spending at all, given overseas travel is very popular at present, for example. What's more, retail sales data do not yet collate internet purchase numbers.

The numbers do show, nevertheless, that general spending is weak compared to the strong rise in average incomes, brought about by low unemployment. But the wary household is shifting this bonus into savings in the current global climate of uncertainty.

CBA suspects the savings rate is unlikely to grow further from here, meaning further income increases should be channelled into spending increases. But that does not ensure the recipients will be the likes of David Jones ((DJS)) and co.

The June trade balance came in at $2.05bn, a bit less than the consensus $2.2bn prediction. That's down from the $2.7bn result in May, which itself was revised up from an original $2.3bn. It was exports which fell short of expectations, indicating a slower than previously assumed recovery from lost production in the big wet of the first quarter for commodity exports. Export growth was as good as flat, while imports shot up 2.6% with the help of the strong Aussie. But, again, the currency benefit is being directed at things like overseas travel and not imported televisions.

What does this all mean for RBA policy?

Well CBA had been of the belief the RBA would hold off on any rate rise until November, and the view remains the same after today's numbers. ANZ has now revised its June quarter GDP growth forecast 0.5% qoq and 0.1% yoy, the latter being a long way below the most recent RBA forecast of 2.25% growth made in the May Statement on Monetary Policy. There is a fresh statement due out on Friday, and ANZ expects a downgrade.

Interestingly, in their "Implications for Monetary Policy" heading in today's report, the ANZ economists offer no implications for monetary policy, ie when the next move might be. We recall that it was ANZ insisting the RBA would hike yesterday. They do question, however, whether a weaker June GDP forecast from the RBA might result in an increased medium term inflation outlook.

Westpac economists, who had previously forecast a rate cut by year end but went a bit quiet after yesterday's RBA statement, simply point out that the futures market is now forecasting two rate cuts by year end.

It's really quite simple. If offshore debt issues and uncertainty are resolved sufficiently, we go up. If not, we stay put. If the offshore situation deteriorates, then maybe we go down but the RBA has not yet made any hint of such a suggestion. Nor has the RBA made the slightest implication that weakness on one side of Australia's two-speed economy could be enough to counter strength on the other.

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