The Economy: Retail Sales, Credit Up

Retail sales rose 0.5% last month, the biggest since last July, beating market forecasts and confirming that the industry is rebounding from the slump in the closing months of 2010.

And business lending hit a two year high in February as well, further confirmation the economy is not doing as badly as the gloomsters say.

Figures from the Australian Bureau of Statistics for February show the increase topped the 0.3% forecast from the market and the 0.4% increase in January.

The retail sales and other figures again confirm the Reserve Bank's suggestion that the economy is operating close to trend, which is where the central bank wants it to be, without too much upward pressure on capacity, costs and resources.

With the RBA board meeting next Tuesday, there was nothing in yesterday's figures to indicate a rate rise is coming soon.

The currency remained over $US1.030 after hitting another new high of $US1.0347 after the release of the retail sales, building approvals and the private credit figures.

It hit a new high early Friday morning of $US1.0364.

The trade weighted index hit 76.4 on Wednesday, an all time high.

Building approvals were weak for a second month, influenced by a big drop in the usually volatile apartments and units side of the figures. New home sales were a touch stronger last month and home prices were mixed to lower, especially in Melbourne (see following story).

Private credit grew at a quicker pace (see below) February, the 0.5% rise in the month was the largest since last May.

Retail sales were the real surprise, especially when compared to the continuing reports of tough times, poor sales, reluctant consumers, intense price cutting and the collapse this week of the Colorado group of chains.

Retail sales have now risen by 0.3% in November, 0.1% in December, 0.4% in January and 0.5% in February: which is an annualised rate of 3.9% against the actual 3.2% increase in the year to February.

The ABS said that "Household goods retailing (2.0%), Other retailing (0.7%), Clothing, footwear and personal accessory retailing (0.9%) and Cafes, restaurants and takeaway food services (0.3%) recorded rises in February 2011.

"Turnover was relatively unchanged in Food retailing (0.0%) and fell in Department stores (-0.4%)."

Turnover rose in Queensland (2.3%), Western Australia (1.6%), Tasmania (1.3%) and the Northern Territory (1.7%).

But turnover fell in Victoria (-0.3%), South Australia (-0.5%), the Australian Capital Territory (-1.5%) and New South Wales (-0.1%).

Trend turnover rose 0.2% in February 2011.

This follows rises in January 2011 (0.1%) and December 2010 (0.1%).

Trend turnover rose 2.3% in February 2011 compared with February 2010.

And the report from the Reserve Bank on private credit was also a bit better than expected.

The RBA said total private sector credit was up 0.5% in February 2011, after rising by 0.3% over January.

The bank said that in the year to February, total credit rose by 3.4%, but in the four months to February the annual rate is a faster 4.2%.

The big driver in the increase in February was business credit, up 0.6% from January, to be down just 1.7% in the year to February. That's better than the 2.4% in the year to January, and the drop of 7.1% in the year to February 2010.

In fact it was the strongest monthly rise in 25 months.

The Reserve Bank said housing credit increased by 0.5% in February, following an increase of 0.6% over January.

Over the year to February, housing credit rose by 7%, continuing the slow fall seen in recent months.

Other personal credit rose by 0.2% in February, after rising by 0.1% in January. Over the year to February, other personal credit increased by 0.7%.

Earlier this week RBC Capital cut its interest rate outlook for Australia on a mixed economic picture and regional uncertainty.

The Bank's analysts forecast the Reserve Bank of Australia will raise interest rates by 25 basis points (0.25%) in the fourth quarter of this year to 5.0% and dropped an additional hike earlier in the year.

"The continued mixed nature of the domestic data coupled with the additional near-term uncertainty from the impact upon Australian exports stemming from the Japanese earthquake suggests little urgency for the Reserve Bank of Australia to exercise its tightening bias," RBC Capital said.

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