Retail and housing lifting: HSBC

Thursday’s retail and building approvals data provide more signs that Australia’s economy was re-balancing in Q4, according to HSBC chief economist Paul Bloxham. Retail sales rose by +0.7 per cent in November (market had +0.4 per cent) to be +4.6 per cent higher year-on-year. Building approvals dropped back a little in November, falling -1.5 per cent (market had -1.0 per cent), but are still rising strongly y-o-y, picking up by +22.2 per cent. Both retail sales and housing construction are being supported by low interest rates, a house price boom and some improvement in confidence. We continue to expect that the RBA will not need to cut rates further in this easing phase and that rates may need to rise later in 2014.
Timely indicators continue to suggest that the non-mining sectors of the economy were lifting in Q4 last year. This follows on from a sluggish Q3 GDP print that showed few signs of growth re-balancing.

Thursday’s numbers showed that retail sales continued to rise solidly in November, which is the seventh consecutive month of growth and saw the y-o-y rate rise at its fastest rate since mid-2012. The building approvals numbers ticked down a little, but were broadly positive as they held on the many of the gains accumulated over previous months to still be +22.2 per cent higher y-o-y. The established housing market continues to boom with the latest housing price data showing prices rose by +9.8 per cent y-o-y in 2013.

The rise in building approvals over the year is expected to start to flow through to the housing construction numbers and support GDP growth in coming quarters. The longer lag than usual between the rise in approvals and a pick-up in construction may reflect that much of the growth in approvals over the past year has been in medium-density dwellings (including apartments) which generally take longer to complete than detached houses.

The state-by-state composition of the retail numbers also shows clear signs of the economy re-balancing, with growth in the non-mining states picking up pace over the past year, while growth in the mining states has slowed.