Gloom over Australian economy eases slightly as consumers begin to spend again

Consumer spending retail sales Australian economy trade
A lift in retail sales and strong exports has eased fears on the Australian economy.

The pressure to cut interest rates has eased slightly after figures showed that Australian consumers opened up their wallets and went shopping in February.

After some bleak retail figures in December and January, retail sales for February surprised by being on the upside, growing 0.8% against bleak expectations of just 0.3%.

The bounce-back – combined with the promise of Budget tax cuts for lower and middle-income earners this year – has taken a little bit of pressure off the Reserve Bank to cut official interest rates by showing that consumer spending has stayed resilient despite falling house prices and low wage growth.

Small business expected to spend up

There are also some good prospects of small businesses spending up soon to take advantage of the Budget’s expansion of the instant asset write-off scheme from $25,000 to $30,000.

However, one swallow doesn’t make a spring and even though the sale numbers showed a solid rise across various sectors and states, it is always dangerous to put too much reliance on one month’s figures in either direction.

Averaged across a few months, the figures look okay, but not stunning, with consumers continuing to spend at a reasonable rate, after bringing some Christmas spending forward for the increasingly popular “Black Friday” promotions in November.

Record trade surplus

There is some more good news in the form of another great performance by Australia’s export sector, which is getting stronger all the time.

Seasonally adjusted, the trade balance expanded to a record surplus of $4.8 billion in February, beating the previous high of $4.7 billion in December 2016.

Iron ore to the rescue

As expected, iron ore exports jumped by 11%, or almost $1 billion, as prices rose due to the Brazil supply shortage, with volumes rising as well.

That situation may not persist given that both Rio Tinto and BHP have suffered damage to their export operations from Cyclone Veronica.

Coal exports were not as rosy due to the slowdown of thermal coal being processed through Chinese customs checks.

While prices remained high, the value of thermal coal exports fell 21%.

Coal exports overall plunged by $760 million or 13%.

Overall, exports edged up to another monthly record closing in on $40 billion, while imports slipped 1%.

Rural exports were also down due to the drought, dropping $44 million over the month as cereal and wool exports fell around 6%.

Car sales slumping

The one real blot on Australia’s economic copybook is car sales, which have now slowed for three consecutive months.

For March sales were down 7.1% in March compared to the same month in 2018, while sales dropped by 9.3% in February and 7.4% in January compared to the previous year.

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.