Australian Shoppers Pause for Breath in April

Australian retail sales expanded at their slowest pace in almost a year in April as shoppers pinched pennies after three months of heavy spending, though analysts argued the outlook for consumption remained strong.

Retail sales rose 0.1% in April to A$19.01 billion (US$15.6 billion), short of forecasts of a 0.4% increase and the smallest rise since May last year.

The subdued result had only a modest impact on financial markets since it merely reinforced expectations for steady interest rates in the short term.

"This is a soft number but that's just payback from the recent strength that we saw," said Steven Milch, head of economic research at St. George Bank. "Overall, the annual growth rate is still fine."

Sales in April were up a solid 6.2% on the same month last year.

"I do not think there are any interest rate implications and we expect rates to be on hold this year," added Milch.

The Reserve Bank of Australia (RBA) raised rates three times last year to contain inflation, which has duly slowed in the past two quarters. Still, the central bank recently cautioned that brisk domestic demand and an ever-tighter labor market meant the longer-term risks for inflation were on the high side.

Analysts noted the fundamentals for spending were supported by strong employment growth and a jobless rate at 32-year lows, which helped boost consumer confidence to record highs in May.

Consumers also have A$31.6 billion of tax cuts to look forward to over the next four years, while a four-year bull run in Australian equities has fattened household wealth. "The outlook remains upbeat for the second half of the year with a strong labor market, bonus payments and tax cuts," said Brian Redican, a senior economist at Macquarie Bank.

Engineering Growth

Other data out on Wednesday showed the value of construction work done in the first quarter rose 2.7% to an inflation-adjusted A$27.23 billion.

That was well above median forecasts of a 1.0% increase as spending on engineering projects like mines, roads and ports jumped, providing a filip to economic growth.

Engineering did the heavy lifting with a 5.4% rise in the quarter, leaving spending 10.9% up on the year. The global boom in commodity prices of recent years has unleashed massive investment in mines and infrastructure projects.

Work on non-residential projects like shopping malls and offices fell 3.1%, a payback from a run of hefty increases. But spending on residential construction surprised by rising 3.4%, the biggest gain in three years.

The construction figures will feed into the first-quarter gross domestic product (GDP) report due next week.

Median forecasts are that the economy grew a brisk 0.9% last quarter, adding to the healthy 1.0 percent gain seen in the previous quarter.

"The rise in construction work done suggests a decent contribution to GDP from residential investment," said Su-Lin Ong, a senior economist at RBC Capital Markets. "This adds to the partial data available thus far that point to strong domestic demand in the quarter, underpinned by robust private consumption," she added.