Retail, housing data undershoot hopes

Retail trade and residential building approvals undershoot expectations in February but an interest rate rise next week is still seen as likely.

Retail turnover fell by 1.4 per cent in February, seasonally adjusted, more than offsetting the 1.1 per cent rise reported for January, according to data released by the Australian Bureau of Statistics (ABS) on Wednesday.

Compared with a year earlier, turnover in January was up by only 3.4 per cent, while the bureau's trend measure showed turnover was rising at a feeble annualised pace of just 1.1 per cent.

The ABS also said the number of residential building approvals fell by 3.3 per cent, seasonally adjusted, after a 5.5 per cent drop in January, although the total was still 34 per cent higher than a year before.

Economists had expected both retail trade and residential approvals to have risen modestly.

In a section of the building approvals data not usually in the spotlight, the value of non-residential approvals fell by 13 per cent in February, following falls of 12 per cent in December and 40 per cent in January.

As a result, the toal value of approvals, residential included, was $5.9 billion in January, 30 per cent or $2.6 billion per month lower than at the recent peak in November.

Consumer spending and investment in buildings are key components of total demand.

With the cash injections to consumers' bank accounts exhausted, the first home buyers grant back to normal and the wave of government sponsored infrastructure spending subsiding, it appears these two drivers of economic activity are losing momentum.

There is always the chance that the weak February figures were depressed by some temporary factor unrelated to the underlying trend.

And the economy is due for a major, sustained boost from the resumption of the mining boom after the stumble caused by the global financial crisis.

Accordingly, the futures market has still factored in a rise in the cash rate to 4.25 per cent from its current 4.00 per cent when the board of the Reserve Bank of Australia (RBA) holds its monthly monetary policy meeting on Tuesday.

The chance the market gives a hike is a tad less than two in three, but there is a chance the unexpectedly weak data on Wednesday could lead to a reassessment in favour of no change in policy before the RBA announces its decision at 1430 AEST on Tuesday.

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