* Retail sales outpace forecasts for fourth month of solid
* Home building on track for much stronger year as low rates
* Markets all but price out risk of further RBA easing
By Wayne Cole
SYDNEY, Jan 9 Australians have rediscovered the
urge to spend as retail sales and house building blew past
expectations in November, just the warming mixture needed to
help offset a cooling mining boom.
That is exactly the outcome the Reserve Bank of Australia
(RBA) sought when it steadily cut interest rates to record lows
last year and reinforces market expectations that the next move
will be up, albeit not for some time yet.
"Sales momentum has picked up since August, and given the
reasonably positive anecdotes, the odds are that sales finished
2013 on a firm note," said Su-Lin Ong, a senior economist at RBC
"The RBA will welcome the ongoing signs of policy traction
and stay on the sidelines."
Rates have been on hold at 2.5 percent since August and
investors have priced out almost any chance of another easing
this year. Indeed, futures markets show some are wagering that
2014 could end with rates on the rise.
Thursday's figures from the Australian Bureau of Statistics
showed retail sales rose 0.7 percent in November to a seasonally
adjusted A$22.5 billion ($20 billion), easily outpacing market
forecasts of a 0.3 percent gain.
Importantly, it was also the fourth straight month of solid
increases in spending after a fallow period earlier in the year
and lifted annual growth in sales to 4.6 percent, the fastest
pace in 17 months.
That is a big plus for economic growth since retail spending
makes up almost a third of household consumption, which in turn
accounts for 53 percent of the country's A$1.5 trillion in
annual gross domestic product (GDP).
Evidence suggests wallets have stayed open with the major
retailers reporting a strong holiday shopping period. The
Australian Retailers Association estimates A$42 billion was
spent just in the lead up to Christmas.
Demand for new vehicles also ended the year on a high note
with sales in December up 5.3 percent on the previous month,
according to the Federal Chamber of Automotive Industries.
"Anecdotally the Australia economy seems to have lifted a
gear over December, which has continued early into the New
Year," said Savanth Sebastian, an economist at CommSec.
"Consumers certainly have more reason to be optimistic
given, warmer weather, rising house prices and recent share
market gains - all supporting a lift in sentiment."
The ascent of home prices, which grew at an almost 10
percent pace over 2013, has in turn encouraged a much needed
revival in home construction.
Approvals to build new houses jumped 6 percent in November,
from the previous month, to be at the highest since mid-2010.
For the year to November, approvals were up by a barnstorming 18
Include apartment buildings, and approvals for the year were
up no less than 22 percent.
Home construction has an outsized impact on the economy
given all the different trades involved and habit of buyers to
pick up new furniture and electronics. The sector is also a big
employer and contributes heavily to state tax revenues.
The ABS estimates that every A$1 spent on residential
construction generates A$1.31 worth of spending elsewhere in the
economy, while every million dollars spent creates 17 jobs.
As a result, a typical recovery in housing can add 2
percentage points or more to economic growth over a two to three
"The residential construction upturn looks to be firmly
entrenched, and will be one offset to lower levels of mining
construction." said Diana Mousina, an economist at Commonwealth
Bank of Australia.
"The RBA will be pleased that prior cuts to interest rates
are having a noticeable impact on the housing market."
(Reporting by Wayne Cole; Editing by Jacqueline Wong)