Aust retail sales in surprise drop

CHRIS ZAPPONE
Last updated 14:21 04/07/2011

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Retail sales unexpectedly dropped in May as weak consumer confidence translated into poor demand in shops.

Turnover for the month shrank 0.6 per cent, the most since October, according to Australian Bureau of Statistics figures. Economists had been expecting sales to increase 0.3 per cent for the month. The drop compared with a revised 1.1 per cent increase in sales for April.

Other data out today also signalled ongoing sluggishness in the Australian economy. Housing approvals in May, for instance, fell 7.9 per cent for the month, compared with a 0.7 per cent drop expected by economists. Approvals to build new homes are down more than 14 per cent compared with a year earlier.

Consumer prices, meanwhile, were flat in June, extending a slowdown in recent months and all but ruling out an interest rate rise in the near term. Separately, the monthly ANZ survey of job advertisements show a pickup in demand in June, reversing about half of the previous month's drop. Ads for last month rose 3.7 per cent compared with the 6.5 per cent drop in May.

Macquarie senior economist Brian Redican said retail turnover was much weaker than expected: "We're surprised to see how much of the previous strength has been reversed in the month of May."

Mr Redican said the falls were consistent across sectors, including food sales, household goods, department stores.

"It does suggest that people aren't going to spend unless they have to," he said.

The dollar fell about a third of a US cent to 107.28, following the release of the data, as investors trimmed expectations about an interest rate rise in coming months.

CAFES UP, DEPARTMENT STORES DOWN

In May, food retailing slipped 0.4 per cent, while clothing and footwear dropped 1.8 per cent, the ABS said.

Sales in department stores fell 1.4 per cent, the ABS said, but turnover edged up 0.4 per cent in cafes and restaurants in the month.

In New South Wales sales fell 1.2 per cent while in Victoria they fell 1.1 per cent. Sales fell 0.6 per cent in the Australian Capital Territory and were unchanged in Queensland, the ABS said. WA bucked the trend, rising 0.8 per cent for the month.

"Slowing jobs and wages growth as well as the threat of higher rates to come has taken a toll on confidence and discretionary spending," said Moody's Economy.com analyst Katrina Ell.

"We expect this is just a soft patch and retail trade will strengthen again over the year, keeping pressure on the Reserve Bank to hike interest rates."

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- Sydney Morning Herald

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