Australian retail sales rose a healthy 0.8% in October, twice the market forecast, suggesting falling petrol prices were helping offset higher borrowing costs.
Other data on Thursday showed private sector credit rose a solid 1.1% in October, just above forecasts, while business investment fell sharply in the third-quarter.
The Australian dollar firmed while bonds fell as investors focused on the strength of sales and borrowing and revised up the risks that the Reserve Bank of Australia (RBA) would have to tighten again to cool the economy.
"Credit growth remains robust, and probably a little higher than the RBA would be comfortable with, and retail sales had a good pick up, which is consistent with falling petrol prices in recent months," said Warren Hogan, head of market economics at ANZ Investment Bank.
"It puts a bit of a question mark over how much of a negative impact the rate hikes we've seen are having on the household sector," he added.
The central bank has raised rates three times so far this year, taking them to a five-year high of 6.25% in an effort to restrain inflation.
The money market had been banking on the consumer staying subdued so the bounce in sales saw interbank futures nudge up the implied risk of a rate hike to around 24%, from 16% before the data.
Retail sales account for around 23% of Australia's GDP and the sector is the biggest single employer with about 15% of all jobs. Strength in food retailing and a rebound in department stores led the improvement in October, lifting sales to A$18.37 billion ($14.35 billion).
In Reasonable Shape
Yet the credit figures showed borrowing for personal reasons, such as on credit cards, rose by a very modest 0.4% in the month, suggesting the extra spending was funded by savings on petrol rather than from credit.
Housing credit also showed signs of slowing, with the 0.8% increase in October the lowest since 2000. In contrast, business borrowing jumped 1.6% in the month, to be up a hefty 16.7% on the year.
"That's probably the combination the RBA would like to see -- a little bit slower on housing but still pretty solid on business," said Stephen Halmarick, co-head of market economics at Citigroup. "Overall, numbers that indicate the economy looks in reasonably good shape".
The strength of business borrowing contrasted with government figures on capital spending for the third-quarter which showed a steep 6.0% fall, the biggest drop since 1999.
"This is consistent with a maturing in the business investment cycle after several strong years underpinned by the booming resources sector," said Su-Lin Ong, a senior economist at RBC Capital Markets.
Notable was a 17.4% fall in mining investment as the breakneck spending of recent years finally slowed.
"Business investment now looks likely to have detracted from growth in the third-quarter," added Ong.
Gross domestic product (GDP) for the third-quarter is due next week and analysts have been trimming their growth forecasts given weakness in investment and the impact of the drought.
Ong looked for growth of 0.7% in the quarter, which would be an improvement on the second-quarter's paltry 0.3% gain, but would only lift annual growth to a still modest 2.2%.