As promised, a little more analysis of the retail figures and what I think it all might mean for us going forward. As has been in the case in many developed countries, the modern era has largely been a story of the triumph of consumerism in Australia with turnover rising relentlessly over the decades and even through the financial crisis, with a bit of a blip (click chart):
Zooming in a little in the below chart, we can see that seasonally adjusted retail turnover has taken a substantial jump over the past 12 months, which will be a more than handy contributor to Australian economic growth.
The driver, of course, has been ultra-low interest rates and households enjoying ongoing unexpectedly cheap mortgage repayments, hence the huge increase in expenditure on restaurants and eating out as I noted this morning here.
Look a little more closely, though, and you'll note that the rate of retail growth has slowed a little in recent months (click chart):
By the way, if you're wondering which state I think has the strongest economic fundamentals, the answer is New South Wales
Retail turnover in NSW has soared by a seasonally adjusted 8% over the past year as compared to weaker results in other states such as South Australia (3%), Western Australia (1%) and the Australian Capital Territory (negative 2%).
What does this all mean?
Tomorrow we will see Australia's National Accounts released which will show that we haven't experienced a recession for an incredible 90 consecutive quarters (click chart):
Today's net exports figures were verging on astonishing, adding a whopping 1.4 percentage points to the GDP result which will more than offset soft inventories data. I guess we shouldn't be too surprised by that. After all, look at what volumes have been doing:
No surprises that interest rates were left on hold today with the Reserve Bank adopting a fairly neutral tone. Variable mortgage rates remain at exceptionally low levels at well under 6%.
As noted, while there's always a silly amount of guesswork involved in these things, tomorrow's National Accounts now appear likely to show a surprisingly strong GDP print, perhaps even 1.0% for the quarter or more, and annual growth of 3% or perhaps a little higher.
Note, though, how retail trade growth has tapered a little in recent months (consumer confidence has now been zinged somewhat by the Federal Budget too), and commodity prices have fallen quite substantially since the March quarter ended.
In short, Q2 is not going to be as strong as Q1 has been, and we can expect that interest rates will remain at generational lows of 2.50% (perhaps even lower) throughout the remainder of 2014, and maybe even for longer than that.
Finally, note how the RBA has set the scene for precisely that outcome (my bold):
"Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.