Economics wrap: Hey, big spender!

Ahead of the release of the March quarter economic growth figures this week, data Friday confirmed that household consumption remained solid in April, even though inflation was clearly evident.

Retail sales figures for April from the Australian Bureau of Statistics showed a 0.9% rise in sales for the month – to a second record total in row and saw total sales nudge $34 billion.

It’s a sign that household consumption remains buoyant at the start of the second quarter of the year after solid rises in the three months to March.

April’s rise means retail sales are now 9.6% above where they were a year ago. With headline inflation running at an annual 5.1% in the year to March, there was still an appreciable rise in sales. Volumes rose a solid 1.2% in the three months to March and this strong growth will have helped GDP growth in the first quarter.

That growth data will be released on Wednesday in the latest national accounts (after the current account report for the quarter, government finance data and business indicators are released tomorrow).

The AMP’s chief economist, Shane Oliver expects March quarter GDP “is expected to be flat and up 2.3% year on year, with drags from net exports (which are expected to detract 1.8 percentage points) and dwelling investment, weak growth in business investment and solid growth in public spending and consumption.”

“Note though that domestic demand will still be strong,” Dr Oliver said in his weekend note.

Economists at the National Australia Bank also expect a flat quarter on quarter result of 0.1% for an annual rise of 2.4%.

A reading around 2.4% will be noticeably slower than the 3.4% in the December quarter.

Economists at Moody’s are a bit more optimistic, looking for an annual growth rate of 2.8% for the quarter.

“The Omicron-led COVID-19 outbreak considerably weakened mobility in the early months of the year. But retail spending revived since February and services consumption improved as interstate travel picked up.”

“Commodity prices have been a source strength for the trade surplus. Even so, GDP growth is likely to have moderated after the stronger-than-expected December-quarter performance, Moody’s economists wrote.

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Looking at the April retail sales, Dr Oliver also noted at the weekend “This is only partly due to rising prices and mostly reflects the surge in goods demand through the pandemic so it will likely slow as demand continues to rotate back to services.

“In the meantime, consumers still seem to be spending despite cost-of-living pressures – helped along by the strong jobs market and excess saving built up through the pandemic,” he wrote at the weekend.

The only possible negative is that the 0.9% rise was the lowest monthly gain so far this year – January saw a rise of 1.6%, February, 1.8% and March, 1.6%.

Compared to the 5.1% rise in headline inflation, and the 1.2% rise in volumes for the quarter, inflationary pressures have not yet had a dramatic impact on sales growth, though the cost pressures in fresh food, especially meta, fruit and vegetables can’t be denied.

A lower gain for May would suggest the strength in household consumption was fading in the wage of the rate rise from the Reserve Bank and more to come.

But the data strongly suggests the federal budget in late March and the calling of the May 21 federal poll in mid-April had little impact on consumer spending.

ABS Director of Quarterly Economy Wide Statistics, Ben James, said on Friday “The strength in retail turnover is being driven by spending across the food industries. High food prices have combined with increased household spending over the April holiday period as more people are travelling, dining out and holding family gatherings.

“There were strong rises in both food retailing and cafes, restaurants and takeaway food services. This is a contrast to the consumer behaviour previously seen during the pandemic, where these two industries would consistently move in opposite directions as outbreaks and restrictions either tightened or eased.”

Food retailing had the largest rise, up 1.9%, cafes, restaurants and takeaway food services saw a rise of 3.3%, clothing, footwear and personal accessory retailing saw a rise of 3.1% and other retailing edged up 0.50%.

Two industries experienced falls in turnover this month, with household goods retailing seeing a fall of 2.7% and department stores dropped 2.5%.

NSW was the only state or territory to record a fall, down 0.3% following March’s strong 1.8% rise.

Queensland had the largest rise in retail turnover, up 1.6%, as a further easing of public health restrictions saw the removal of density limits, as well as check-in and vaccination requirements to enter venues boosting trade.

Sales also rose in Victoria (1.1%), WA (2.2%), South Australia (1.4%), Tasmania (2.0%), the ACT (0.5%) and the Northern Territory (0.7%).

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Other data last week on construction and investment might have had weak headline figures but the underlying details were encouraging.

The March quarter construction fell 0.9% quarter on quarter (qoq) and this included a fall in dwelling construction as constraints on the supply of building materials and labour impact along with east coast flooding. This weighed down business investment in the quarter which fell 0.3%.

All of which will be a dampener on March quarter GDP.

But there was also good news, according to Dr Oliver. Plant and equipment investment rose by 1.2%qoq. Business investment plans for 2022-23 rose a solid 12% on 3 months ago and are up 15% on plans for 2021-22 from a year ago pointing to a strong outlook for growth in investment.

And Dr Oliver said “there is a huge pipeline of homes that have been approved and commenced but are yet to be completed pointing to plenty of work for home builders still ahead even as housing demand slows with higher mortgage rates and poor affordability.”

Dr Oliver says other data this week will see April building approvals to show an 8% gain after March’s 18.5% slump and housing credit growth to remain solid (both out tomorrow). The Reserve Bank’s private credit data for April will be out tomorrow.

Wednesday sees the CoreLogic house price data for May on Wednesday which is expected to show a 0.3% decline in average capital city prices led by a 1% fall in Sydney and 0.6% fall in Melbourne; the trade surplus (Thursday) to fall back to $8.5 billion and housing finance for April (Friday) to fall 0.5% after a 1.6% rise in March.