The week that was
Retail sales shocked the market with a hefty 0.6 per cent fall in turnover in August, which followed a fall of 0.2 per cent in July. It was the weakest two-month result for retail spending in 7 years and the result pushed the Australian dollar lower and saw a partial re-pricing of the interest rate market with the expectation for the first increase pushed back to the very end of 2018.
No doubt record low wages growth, still high levels of underemployment and the relatively high unemployment rate are dampening consumer optimism and therefore spending. The recent uptick in some mortgage interest rates, outside any moves in official rates, is also likely to have dampened the spending power of consumers.
With retail sales making up close to a quarter of overall GDP, the recent falls are likely to ensure September quarter GDP figures will record yet another quarter of sub-trend growth.
The week ahead
With the eyes of the Reserve Bank firmly on the housing market, the release of the housing finance data will be scrutinised for more clues on the extent of the cooling in demand for housing. Over recent months, there has been a cooling in housing finance growth as a mix of tighter regulation, a lift in mortgage rates for investors and a more general souring in mood towards housing have all impacted.
In what is no doubt welcome news for the RBA, in the last few months loans for investment purposes have fallen, which has made room for some growth in borrowing for owner-occupiers. If these trends continue, the RBA will have a little more confidence that the banking sector, in particular, and the economy more generally, remains well away from any significant instability.