Retail sales at a near two-year high

Retail sales have posted the strongest quarterly rise in nearly two years but
economists say the positive effect of recent fiscal and monetary policy stimulus may
be waning.
In the June quarter, retail sales rose by 2.0 per cent to $55.037 billion, in
seasonally adjusted volume terms from the March quarter, the Australian Bureau of
Statistics (ABS) said on Tuesday.
The result was above economists' forecast of a 1.3 per cent rise, and the strongest
quarterly performance since a 2.2 per cent increase in September 2007.
National Australia Bank senior economist David de Garis said the ABS data showed the
second round of the federal government's cash handouts and low interest rates had
supported the retail sector.
"If that is symptomatic of what consumers behaviour is in the middle of the year, it
is suggesting that there is some momentum in consumption thanks to the fiscal
stimulus from the government and a very expansionary setting for monetary policy,"
he said.
"It is suggesting that the transmission mechanisms are working.
"It has reduced the downside for the economy."
RBC Capital Markets senior economist Su-Lin Ong said the better than expected retail
sales growth for the June quarter would give a boost to gross domestic product (GDP)
for the second quarter, due for release as part of the national accounts on
September 2.
Australia posted 0.4 per cent growth in GDP during the March quarter, ABS data showed.
"Retail sales will contribute around 0.4 percentage points to GDP and despite the
severity of the global recession, this suggests that growth may well print another
positive in the second quarter further highlighting Australia's status as a growth
out performer," Ms Ong said.
All states except the Northern Territory posted an increase in retail sales, with
Victoria and Queensland both up 2.3 per cent.
JP Morgan economist Helen Kevans said the 1.4 per cent fall in the value of sales,
to $19.417 billion, during the month of June was a "surprise".
"Consumer confidence improved in June, equity prices meandered higher and the
Australian dollar remained elevated, leading us to believe that the prolonged
cashed-up consumer spending binge, which initially owed to the generous government
cash handouts, would continue," Ms Kevans said.
Sales were weaker in areas of discretionary spending, with department stores down
8.8 per cent in June and clothing sales 7.4 per cent lower, Ms Kevans said.
"This sharp fall in values we attribute to heavy discounting among retailers," she
said.
"This was evident in the quarterly volumes data showing a surge in clothing (up 3.7
per cent in the quarter) and household goods items (up three per cent)."
Ms Kevans said shop registers were likely to be muted in the second half of 2009 as
the rate of unemployment rose and higher petrol prices hit the pockets of consumers.
"By year end, the unemployment rate should have a 7 per cent-handle and, although
the immediate impact of rising oil prices is to increase consumer prices, a
sustained elevated level of petrol prices will dampen households' purchasing power
and eat into households' disposable incomes."