Daily Commentary BY THE CURVE TEAM –

Domestic Data Shows More Support Needed here

5th of July, 2019

While resource exports continue to support the economy, yesterday’s data showed that two other key sources of growth continue to struggle.

Outside of resource exports and the large pipeline of government led infrastructure spending, the rest of the economy remains under pressure. Yesterday’s data saw another soft retail sales report as consumers struggle with persistently low wage growth and the negative wealth effect from falling house prices.

After falling in April, retail sales failed to bounce in May, registering a 0.1% increase in turn over for the month. Looking deeper into the detail and the result looks a little better given food retailing provided an unusual drag on the over all result after falling 0.3%. Cafe and restaurant spending held up well, something we often see when overall retail is weak as consumers choose to treat themselves to a small luxury rather than larger purchases.

Hopefully the progress of the tax cuts through parliament along with the back to back rate cuts will provide a boost to consumption over the months ahead.

The construction industry will be hoping that rate cuts help boost activity too. The latest construction PMI from the Australian Industry Group showed that activity continues to slow at a fairly rapid rate.

There is some hope on the horizon for the construction industry with recent housing market indicators starting to look a little better. The election result and rate cuts will no doubt help and we have seen action clearance rates and new home sales increase recently as well.

What is clear from yesterday’s data is that the economy needs supporting if the we are to see the necessary drop in unemployment to lift wages and drive inflation back to the target band. While rate cuts and tax cuts will help, they will only provide a temporary boost, pulling forward demand. More still needs to be done to provide a sustainable lift in Australia’s growth profile over the long term.

David Flanagan

Director - Interest Rate Markets