July 4, 2019 / 3:55 AM / 16 days ago

UPDATE 2-Wary Australian shoppers, job slowdown build case for third RBA rate cut

* May retail sales +0.1% vs +0.2% consensus

* May qtr job vacancies -1.1%, first decline since 2016

* Markets expect a third rate cut from the RBA to 0.75% (Adds further comment from analyst, context on employment)

By Swati Pandey

SYDNEY, July 4 (Reuters) - Australian retail sales disappointed yet again in May and job vacancies fell from record highs, adding to signs of an underpowered economy and raising the prospect of a third rate cut this year by the nation’s central bank.

Thursday’s data from the Australian Bureau of Statistics (ABS) showed retail sales rose a pedestrian 0.1% in May after falling 0.1% April, and below analysts’ forecast of a 0.2% gain.

Separate data also out on the day showed the number of job vacancies - a leading indicator for labour demand - fell 1.1% in the three months to May from the previous quarter, clocking its first decline since February 2016.

The underwhelming data suggest economic growth remained weak in the June quarter, after momentum eased in the second half of 2018.

That builds the case for a third rate cut this year and piles pressure on the country’s newly re-elected government of Prime Minister Scott Morrison to provide more aggressive fiscal support.

“This decline in vacancies, along with other leading labour market indicators, suggests an imminent slowdown in employment growth,” said Catherine Birch, a senior economist at Melbourne-based ANZ bank.

“Weaker jobs growth is a concern.”

Financial markets are pricing in a near 90% chance of a cash rate cut to 0.75% before Christmas. With another 25-basis-point easing already in the price, the local dollar barely moved at $0.7037.

Australia’s labour market has been a rare bright spot in the country’s struggling economy and RBA Governor Philip Lowe had hoped sustained strength in employment would help push the jobless rate lower and spark wage inflation.

A pick-up is increasingly looking unlikely though, with vacancies pointing to a slowdown at a time when the jobless rate has risen to an eight-month high of 5.2% despite strong employment growth.

“Right now, it looks as though the labour market is actually becoming looser,” said Callam Pickering, APAC economist at global job site Indeed.

“From a Reserve Bank perspective this data merely confirms that they were right to cut rates despite what was, at the time, a relatively solid labour market. The Reserve Bank is likely to cut again before the end of the year.”

WAGE ANGST

Australia’s A$1.9 trillion ($1.3 trillion) economy, which has dodged a recession since the early 1990s, has hit a soft patch in the past year pressured by a property market slump, weak consumer spending and slackening global demand.

The Reserve Bank of Australia (RBA) responded to a series of sub-par economic data by cutting rates twice since June to an all-time low 1.00%, ending a record spell of unchanged policy since August 2016.

Many analysts believe yet more stimulus is needed, including bigger infrastructure spending by the government.

The outlook does appear slightly better now with housing prices showing tentative signs of revival, the country’s major banks lowering their mortgage rates and the promise of tax cuts for Australian households.

About 10 million middle- and low-income earners are likely to receive a rebate worth up to A$1,080 for the 2018/19 year-ended June 30.

All the same, the country’s retailers are still in a cost-cutting mode with earnings under pressure. Australia’s second-biggest grocery chain Coles Group has unveiled a plan to reduce A$1 billion in costs over the next four years.

Just last month, conglomerate Wesfarmers forecast falling annual earnings at its Kmart discount department stores.

Thursday’s ABS data showed falls in retail sales for food, department stores and clothing while household goods and eating out rebounded after declining in April.

Miserly consumer spending is a major worry for the RBA and many economists expect the current weakness to extend for some time yet.

“Without an acceleration in wages growth, we’re unlikely to see momentum in consumer spending pick up,” said Sarah Hunter, chief economist for BIS Oxford Economics.

$1 = 1.4203 Australian dollars Reporting by Swati Pandey; Editing by Shri Navaratnam

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