The Experts

Good economic news keeps flowing

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by Craig James

  • Retail trade rose for the ninth straight month, up by 1.2 per cent in January. It was the strongest monthly increase in 11 months. Annual spending growth lifted from 5.7 per cent to 6.2 per cent – a four year high.
  • Trade surplus widens: Australia’s trade accounts improved from a trade surplus of $591 million to a surplus of $1,433 million in January – the biggest surplus in 2½ years (August 2011).
  • Exports to China soar: Over the past year exports to China hit a record $96.7 billion and the trade surplus hit a record $49.1 billion. China accounts for a record 36.3 per cent of exports.

The retail trade data have implications for retailers, and other consumer-focused businesses. The trade data has implications for exporters and importers via the impact on the currency.

What does it all mean?

The good economic news just keeps on flowing. Latest data shows that consumers keep on spending, while at the same time Australia is paying its way in the world with the trade surplus hitting the highest level in 2½ years. If there is one downside it is the fact that the Aussie dollar is back above US90c. Still, while businesses don’t like the strong currency, and it worries the Reserve Bank, consumers would applaud the firmer Aussie.

The important point about the latest lift in retail sales is that gains are occurring across the board. It’s not just the hot weather causing Aussies to eat out at cafes and restaurants. But butchers, bakers, furniture stores and chemists also posted solid sales in January.

Low and stable interest rates are causing consumers to spend. Add in the impact of the solid housing sector for retailers like furniture stores, as well as the pent-up spending being unleashed with the Federal Election out of the way. The bottom-line is that the outlook for retailers is favourable given that there are signs of an improving job market.

Just like the lift in retail spending, the positive aspect of the January export numbers is that there was broad-based strength across the export categories. In fact, rural exports out-paced non-rural exports for a second straight month. The solid trade surplus provides support for the Aussie dollar near US90c and represents a challenge for non-commodity exporters such as manufacturers as well as the tourist sector.

What do the figures show?

Retail trade

Retail trade rose by 1.2 per cent in January after gains of 0.7 per cent in November and December. Retail trade has lifted for nine straight months. Annual spending growth lifted from 5.7 per cent to 6.2 per cent – the strongest annual growth in four years (since November 2009).

Non-food retailing rose by 1.8 per cent in January, offsetting a 0.7 per cent fall in December. Non-food retail spending is up 5.8 per cent on a year ago – a four-year high. Sales by chain-store retailers and other large retailers rose by 0.3 per cent in January after a 1.7 per cent in December and were up 8.3 per cent over the year.

Strongest monthly growth was by Specialised food retailers like butchers & bakers (up 3.1 per cent); followed by Furniture, floor coverings, housewares and textile goods (up 2.9 per cent); Pharmaceutical, cosmetic and toiletry goods (up 2.8 per cent) and  Cafes, restaurants and catering services (up 2.7 per cent).

Weakest sales growth was by Footwear and other personal accessory (flat); Supermarket and grocery stores (up 0.1 per cent); and Liquor retailers (up 0.5 per cent).

Strongest annual growth is being recorded by Other recreational goods like sporting goods, entertainment & toys, up 19.4 per cent; Cafes, restaurants and catering services (up 15.7 per cent); and Clothing retailers (up 10.8 per cent). Weakest annual growth is by Newspaper and book retailers (down 7.9 per cent) and Footwear and other personal accessory (down 2.3 per cent).

Sales rose in six of the eight states and territories, led by Northern Territory (up 3.3 per cent) and followed by NSW (up 2.1 per cent), Tasmania (up 1.8 per cent), Queensland (up 1.2 per cent), Victoria (up 1.0 per cent) and South Australia (up 0.6 per cent). Sales fell most in the ACT (down 1.9 per cent) and Western Australia (down 0.3 per cent).

International trade

Australia’s trade accounts widened from a surplus of $591 million in December to a surplus of $1,433 million in January.

In January, exports of goods and services rose by 3.7 per cent (goods up 4.7 per cent) while imports of goods and services rose by 0.8 per cent (goods up 0.8 per cent). Exports are up 20.1 per cent on a year ago – a near 3-year high – while imports are up by 7.2 per cent.

Rural exports rose by 4.9 per cent in January while non-rural exports rose by 2.8 per cent.

The main components contributing to the rise in exports were: other rural, up $98m (6 per cent); meat and meat preparations, up $94m (11 per cent); metal ores and minerals, up $290m (3 per cent); other mineral fuels, up $162m (6 per cent); coal, coke and briquettes, up $55m (2 per cent); and machinery, up $42m (6 per cent).

Within imports, consumer imports rose by 0.7 per cent in January with capital goods imports down by 9.4 per cent while intermediate goods imports rose by 7.8 per cent.

Consumer goods imports are up 8.4 per cent on a year ago while capital goods imports are down by 6.8 per cent and intermediate goods imports are up by 18.5 per cent.

The net services deficit widened by $116 million to $963 million in January.

Australia's exports to China hit a record $96.7 billion in the year to January, up 30.6 per cent over the year and accounting for a record 36.3 per cent of Australia's total exports. The share of exports going to Japan and the US were at, or near, record lows.

Australia's imports from China hit a record $48.0 billion in the year to January, up 8.1 per cent on a year ago and accounting for a record 19.7 per cent of Australia's total imports.

Australia's rolling annual trade surplus with China rose from $47.3 billion to $49.1 billion in January, translating to almost $2,200 for every Australian person.

Australia’s trade surplus with India slumped to a 7½ year low of $6.8 billion in the year to January.

What is the importance of the economic data?

The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.

The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

What are the implications for interest rates and investors?

The chances of another rate cut have further receded. Anyone placing hope in a rate cut would be relying on a fresh crisis in the global economy. Even that seems unlikely, although the situation in the Ukraine needs to be watched.

We believe that the next move in interest rates is up, but not until later in the year, say around November and December.

The latest economic data will certainly silence the doubters – Australia’s economy continues to lift after election-induced softness over 2013. Simply, there is little to hold our economy back. Even the job market is showing signs of improving as judged by the lift in job advertisements and the announcement by Coles that 16,000 jobs will be created over the next few years.

The solid trade surplus and perception that rate cuts are off the agenda will support the Aussie near US90c in the short-term.

Published: Thursday, March 06, 2014

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