Originally published by AMP Capital
· Australian retail sales rose 0.4% in January. This was in line with market expectations and followed a 0.1% decline in December. Annual retail sales growth rose to 3.1% year on year from 3%.
The modest bounce in January retail sales was driven by 1% plus gains in household goods (after a poor month) and cafe/restaurant sales. After a couple of soft months the January bounce in retail sales tells us that consumers have started the year on a reasonably solid note auguring well for March quarter consumer spending. While 3.1% annual retail sales growth is soft compared to the past it largely reflects depressed retail price inflation so volume growth is not so bad.
Looking forward retail sales are likely to be supported by surging dwelling completions this year which should support sales of household goods, reasonable jobs growth and low interest rates but record low wages growth and an eventual fading of the wealth effect as the Sydney and Melbourne property markets slow will act as constraints.
Retail sales growth remains solid in NSW (+3.2% yoy), Victoria (+3.8% yoy) and South Australia (4.5% yoy) but remains weak in WA at just 1% yoy. With commodity prices up from their lows and export volumes ramping up and the mining investment unwind getting close to the bottom retail sales growth in WA should bottom out this year.
- ANZ job ads fell 0.7% in February but this was after a 3.9% rise in January. The trend in job ads points to reasonable jobs growth going forward.
The latest retail sales and job ads data do nothing to change our view that the RBA will leave rates on hold this year. There is nothing here pointing to an earlier start to rate hikes from the RBA – we remain of the view that rate hikes won’t commence until the second half of 2018.