INSTANT VIEW 4-Australia Sept retail sales fall unexpectedly

Published: 03 Nov 2009 18:12:00 PST

SYDNEY, Nov 4 - Australian retail sales unexpectedly fell in September, while sales for the quarter as a whole also dipped, leading investors to pare back the prospects of another hike in interest rates as early as December.

Separate figures showed the number of approvals to build new homes rose a much-as-expected 2.7 percent in September, thanks mainly to a bounce in the subdued apartment building sector. ***************************************************************

KEY POINTS:

* Sept retail sales -0.2 pct mth/mth, seasonally adjusted (Reuters poll median +0.4 percent)

* Aug retail sales revised to +0.7 pct from +0.9 pct

* Q3 real retail sales -0.4 pct qtr/qtr, s/adj (poll -0.4 pct)

* Sept approvals to build new homes +2.7 pct mth/mth, s/adj (poll median +2.5 pct)

* Sept approvals to build private houses +0.3 pct mth/mth

* For data click on [ID:nSYU008989] [ID:nSYU008990]

COMMENTARY:

BEN DINTE, ECONOMIST, MACQUARIE

"Sales have eased back in September but that shouldn't really be a surprise as they were unsustainably strong early in the year.

"We don't think sales are just going to fall into a heap. Consumer confidence is high, interest rates are still stimulative and people have jobs. We thought the RBA would stay on hold in December and this just supports that view."

SU-LIN ONG, SENIOR ECONOMIST, RBC CAPITAL MAKRETS

"We were looking for a flat outcome for headline, so it's not too far from expectations.

"I think there probably is a little of fatigue from Australian consumers. We saw a lot of bringing forward of expenditure with the two big fiscal packages and I think a little bit of correction is going on in the aftermath.

"I would probably caution even with that outcome in year on year terms, retail sales are running at a decent pace. Year on year growth is still running at a very firm of 6.5 percent.

"I don't think it's any huge surprise to the RBA. They always anticipated some pull back in consumption, and similarly they are expecting a pull back in housing as the first home owners grant is pared back.

"We still think there's a decent chance they will hike in December and I'm not sure that these numbers are much of a surprise."

MICHAEL BLYTHE, ECONOMIST, COMMONWEALTH BANK OF AUSTRALIA

"Retail sales figures are certainly an indication of policy fade coming through. We are seeing a drop that is in line with underlying income growth. This highlights the fact that the consumer side of the recovery story is going to be soft.

"For building approvals, it shows that the recovery in building construction is coming through, though not as fast as policy makers would like.

"These numbers won't stop future rate rises but the odds on a move in December are starting to lengthen. We will need a very strong jobs number next week to put a December rise on the line."

HELEN KEVANS, ECONOMIST, JPMORGAN

"The retail numbers were pretty weak, we did see that price deflation filtering through with food sales falling over the month. What was more surprising was the drop in discretionary spending in department stores and cafes and restaurants, we hadn't expected that weakness just yet.

"If we continue to see the RBA hiking interest rates it's going to have a big impact on consumer spending in coming quarters. We're already flagging there's a risk of the RBA pausing in December, but we'll be watching those domestic numbers such as retail and labour force numbers. I think they'll be pretty key for the RBA."

ADAM CARR, SENIOR ECONOMIST, ICAP

"There's certainly no sign of consumer distress. It doesn't indicate a change in trend. So I don't think the RBA will be concerned with this at all.

"In reality today's data probably points to a stronger Q3 GDP print, because most people were looking for a weaker September quarter retail sales number and it came in a little stronger than I'd forecast.

"To that end with the building approvals number maybe Q3, at the margin, is looking healthier. I'm still pricing in a rate hike (in December). It's going to be a close call. Today's data hasn't swayed me one way or another."

MARKET REACTION:

- The Australian dollar <AUD=> slipped a third of a U.S. cent on the soft sales report. Interbank futures <0#YIB:> rallied as investors priced in slightly less chance the Reserve Bank of Australia (RBA) would raise rates in December, following hikes this week and last month.

LINKS:

- The Australian Bureau of Statistics Web site is: www.abs.gov.au

- For all Australian news and data, 3000 Xtra users can click on <AUSTRALIA>

BACKGROUND:

- Retail sales account for around 23 percent of Australia's GDP and the sector is the biggest employer with about 15 percent of all jobs.

- Estimates for September had ranged from a 0.5 percent drop in sales to a 0.8 percent rise, with a median of a 0.4 percent increase.

- Sales volumes for the whole third quarter were seen dropping 0.4 percent, with estimates ranging from a 0.9 percent fall to a 0.5 percent increase. That would point to a modest drag on GDP growth in the quarter.

- Sales have been generally supported this year by government stimulus packages, but most of that has now faded, leading to uncertainty on whether consumer demand would hold up.

- Policy makers are hopeful that rising wages, high consumer confidence, and relatively low unemployment will support demand going forward.

- Building approvals have recovered sharply in recent months thanks to a potent cocktail of low mortgage rates and governmment grants to buyers of new homes, and another rise was expected for September.

- Housing construction looks set to add to GDP growth in the second half of the year, having dragged on the economy in the previous three quarters.