Originally published by AMP Capital
- July retail sales were flat and up 2.9% year on year.
This was weaker than market expectations for a 0.3% gain. After three consecutive months of solid gains through the June quarter it looks like retail sales are reverting to softness again. While strong jobs growth is supportive of consumer spending it is starting to slow and in the meantime weak wages growth and falling home prices are a drag and so we expect retail sales growth to be subdued going forward much like it was in the 2010-13 period.
While food, other retailing and cafes were solid in August, household goods, clothing and department stores were weak.
- Business indicators were generally a bit stronger than expected in the June quarter – with a solid 2%qoq rise in company profits, the wages bill rising by 1.2%qoq as strong growth in hours worked made up for weak wages growth (albeit growth in the wages bill is slowing down from last year) and a stronger than expected rise in inventories implying a smaller drag on growth than expected from this source. Against this sales volumes were soft at just 0.3%qoq. Overall this implies a bit of upside risk to our June quarter GDP forecast of 0.7%qoq/2.8%yoy.
- ANZ job ads fell -0.6% in August with annual growth slowing to 5.3%yoy consistent with other data pointing to some slowing in jobs growth going forward.
- The Melbourne Institute’s August Inflation Gauge showed both headline and the trimmed mean inflation rising just 0.1%mom or 2.1%yoy, indicating that so far this quarter inflation has remained stuck at the low end of the RBA’s 2-3% target.
Implications
While June quarter business indicators suggest a bit of upside risk to June quarter GDP growth, the softness in retail sales, job ads and falling home prices are consistent with more subdued growth in the current half year. Taken together with inflation stuck at the low end of the RBA’s target range its all consistent with the RBA remaining on hold for a long while yet.