Another day andmore solid news on the economy.
The data flow continues a trend to ‘less-bad’ or even a little bit strong news and the economy could well be picking up some momentum which would be lovely to see after a year or so of malaise.
Importantly, the Dun & Bradstreet business expectations survey showed the expected sales jumped to its highest level in over a decade. Firms are clearly upbeat as record low interest rates, the super low level for the Australian dollar and positive tone from the global economy all weave their magic on economic conditions here in Australia. See the D&B survey details here: https://dnb.com.au/article-bex-sales-expectations-highest-since-2003.html#.VcANyYv5moN
Retail sales did very well in June, rising 0.7 per cent and more importantly, growth in real retail spending for the June quarter as a whole rose 0.8 per cent to be an unambiguously strong 3.6 per cent above the level of a year ago. Clearly the wealth effect from rising house prices and decent levels for the stock market are underpinning spending and offsetting the very weak wages outcomes in recent quarters. Low interest rates are also kicking in.
The weekly ANZ consumer confidence index has jumped 5.5 per cent in the last three weeks, rebounding to a level around its long run average and consistent with decent growth in household spending. What pessimism?
There was a snippet of poor news in the international trade data where a deficit of $2.9 billion was recorded for June, continuing a run of very wide deficits as the slide in commodity prices undermines export receipts and the still decent level of demand growth underpins import inflows. This hurt to national income and probably a lesser net export contribution to GDP is likely to continue for some time, even though the non-mining export sector is doing well.
All up, the news on the economy is a little better than the case a few months ago, and is certainly stronger than many feared.
To be sure, mining investment is in free-fall, national income is being hit by the decline in the terms of trade, but the offset of these significant negative influences appears to be panning out quite nicely in consumer spending, housing, and segments on non-mining investment.
Indeed, the odds of a 3 per cent plus GDP growth rate by year end is increasingly likely, and with that, the RBA will likely switch to a bias to hike interest rates before too long.