Originally published by AMP Capital
This was as expected by the market but the September outcome was revised down from 0.2%mom to 0.1%mom. Retail sales are falling on a trend basis for household goods and department stores reflecting weak traditional discretionary spending but rising in other areas. We see retail sales growth being weak over the year ahead (averaging around 2.5-3% annual growth) as jobs growth slows, wages growth remains weak and falling house prices weigh on consumer spending via a negative wealth effect making households want to increase their saving rate (in contrast to the falling trend in the saving rate seen in recent years). Weak pricing power will also weight on nominal retail sales growth.
This was worse than expected and reflects a 3% rise in imports (with capital goods imports up 8%) against just a 1% gain in exports. So far its consistent with net exports making a lesser contribution to December quarter GDP growth than the 0.3 percentage point contribution seen in the September quarter.
While today’s data leaned on the soft side its unlikely to have much impact on the RBA’s thinking. Our assessment remains that the next move in official interest rates will be a rate cut thanks to sub-par growth, the negative impact of falling house prices, weak wages growth and sub-target inflation but not until second half 2019.
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