Retail sales stay strong, dollar soars, trade deficit grows

Retail sales grew by 0.8% seasonally adjusted in September, a figure that exceeds market expectations of a 0.5% rise and will further reinforce the likelihood of a rate rise when the Reserve Bank of Australia meets next week.

The strong result follows 0.8% growth in August and means that turnover for retail and hospitality businesses in Australia has increased 1.9% seasonally adjusted for the September quarter. That equals annual growth of 8.2%: the strongest rate of growth in over three years.

The fastest growing retail sectors were household goods, which increased turnover by 1.6%, food retailing, up by 1.3%, and recreational goods, up by 1%. Clothing and soft good retailers were the biggest losers in September thanks to a 2.1% drop in sales.

ANZ economist Wain Yuen says the result shows Australian household confidence is in good shape, especially given August’s 0.25% rise in interest rates

“Coming on the back of the strong September quarter CPI outcome, the case for next week’s interest rate hike is compelling indeed,” Yuen says.

And if interest rates go up, so will the Australian dollar – although given that it pushed past the US93c mark last night and, at 12.20pm today is still at US93.16c, one wonders just how high it can go.

The chief cause of last night’s spike was the announcement by the US Federal Reserve of its decision to cut the cash rate there by 0.25% to 4.5%.

The interesting thing is that this had an immediate impact on the US/Aust exchange rate, despite that fact that the rate cut was widely expected. The same thing can be said for the possibility next week’s RBA meeting will lift rates – but if last night’s events are anything to go by, that won’t stop the Australian dollar reaching even headier heights.

A higher dollar won’t be good for exporters, and certainly won’t help lift Australia’s still woeful international trade deficit. Australian Bureau of Statistics figures released today show that, in seasonally adjusted terms, our deficit of imports over exports in goods and services hit $1.862 billion in September, an increase of $197 million on the August figure.

Part of the reason for that figure is the poor performance of manufacturing exporters. Today’s Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index saw the overall sector improve slightly in October, but the performance of exporters lagged well behind that of their domestic counterparts.

“The lack of growth in exports clearly indicates the drag of the high Aussie dollar on manufacturing. This, combined with the competitive pressures being exerted by economies such as China and the associated easing of selling price growth, gives rise to challenging times for manufacturers,” Australian Industry Group chief executive Heather Ridout says.