Australia: Data Gives Mixed Signals

Ahead of this month’s monetary policy meeting the Reserve Bank of Australia (RBA) encountered a raft of mixed messages from latest data releases. On the one hand, a weak labour market lends support to the argument for interest rates to stay low, but on the other hand, strong activity in the property and retail sectors probably needs to be reined in with monetary tightening. Thanks to the current loose policy stance, building approvals hit a 3-year high after surging by a seasonally adjusted 14.4% (m-o-m) in September. This was attributed to private sector dwellings (excluding houses), which leapt by 31.8%, while private housing consents rose by a slight 1.5%. In the same month, retail sales beat expectations, jumping by 0.8% (m-o-m), following a 0.5% rise in August. Department store sales were the clear outperformer, a sign that looser monetary policy is boosting consumer sentiment and spending. That said, though, wage growth is still weak and job creation remains sluggish as illustrated by the unemployment rate climbing to an almost four year high of 5.7% in Q3. Given the high jobless rate, many are sceptical about whether this spending momentum can be sustained. In view of the recent spate of data and taking into account higher-than-expected inflation for Q3 ( 2.2% y-o-y), the RBA left the cash rate unchanged at 2.5% on November 5th. It was noted that despite business confidence having recently risen, uncertainty remains about how quickly this improvement in business sentiment will translate into higher activity and hiring.

The trade deficit narrowed to A$284mn in September, down from A$-693mn in August, as exports rose by 0.5% (m-o-m) while imports shrank by 1.0%. After hitting A$-16.2bn in 2012, the trade gap for this year is expected to shrink to A$-3.3bn.


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