Australia’s Retail Sales Unexpectedly Drop, Driving Down Currency, Yields

Australian retail sales unexpectedly fell in March for the first time in five months, weakening the currency and shares of some of the nation’s biggest stores.

Sales declined 0.5 percent from a month earlier, when they increased a revised 0.8 percent, the Bureau of Statistics said in Sydney today. The median forecast in a Bloomberg survey of 21 economists was for a 0.5 percent gain, and none saw a drop.

The report led some economists to cut their forecasts for first-quarter growth. Reserve Bank of Australia Governor Glenn Stevens has paused raising interest rates for the past five meetings to help Queensland state recover from damage to properties, mines and crops from floods and a cyclone.

“Consumers are pretty cautious as they face higher mortgage rates and living costs,” said Su-Lin Ong, senior economist at RBC Capital Markets in Sydney. “There is a lot of uncertainty over households.”

Ong said she will probably change her forecast to a contraction in gross domestic product in the first quarter, from a previous prediction of a slight expansion. The RBA earlier this week said GDP “likely” shrank in the January-March period because of the natural disasters.

Economists at Westpac Banking Corp. today said the decline in first-quarter GDP may be larger than their current forecast for a 1 percent drop.

Currency Slides

The currency slid to $1.0697 at 1:08 p.m. in Sydney from $1.0769 just before the data. The two-year government bond yield declined to 4.925 percent from 4.966 percent prior to the release.

Spending at department stores fell 3 percent, and consumers spent 0.4 percent less at food retailers, today’s report showed. They spent 0.1 percent more on clothing and footwear, which was the only category that showed a gain, it showed.

Shares of Myer Holdings Ltd. (MYR), the country’s largest department-store chain, slumped as much as 1.6 percent to A$3.11, the lowest intraday price since April 11. David Jones Ltd. (DJS), the second-biggest department store operator, fell as much as 1.8 percent to A$4.44. Woolworths Ltd. (WOW), Australia’s biggest retailer, dropped as much as 0.5 percent to A$26.72.

Retail sales, adjusted to remove inflation, were unchanged in the three months through March 31 from the previous quarter, the report showed. Economists had forecast a 0.6 percent gain.

Queensland Damage

Retail sales in Queensland fell 2.9 percent in March, today’s report showed, after climbing 3.2 percent the month before.

In a statement after its May 3 policy decision, the RBA said it left rates unchanged as households continue to show caution in spending and borrowing, and a higher rate of savings.

At the same time, a mining investment boom to meet demand from China helped Australia record its biggest annual increase in jobs on record last year and employers added more workers in March than forecast, lowering the jobless rate to 4.9 percent.

A separate report today showed Australian home-building approvals rose the most since October, a sign demand for housing may increase as the economy approaches full employment.

The number of permits granted to build or renovate houses and apartments advanced 9.1 percent from February, when they fell a revised 5.3 percent, the Bureau of Statistics said in Sydney today. The median forecast was for a 5 percent increase in a Bloomberg News survey of 19 economists.

It was the first gain in building approvals this year after the natural disasters in Queensland disrupted the market.

Falling Permits

Building approvals fell 18.1 percent from a year earlier, the report showed. That compares with economists’ forecast for a 25.2 percent drop year-over-year.

Approvals to build private houses fell 0.8 percent to 8,016 in March from the previous month, the report said. Approvals for apartments and renovations advanced 26.1 percent to 5,147.

Stevens increased rates by 175 basis points from October 2009 to November last year to 4.75 percent, moves that helped the Australian dollar gain more than 18 percent in the past year. It this week touched the highest level since it was freely floated in 1983.

“The rapid fire rate hikes over the latter part of last year should bear the brunt of the blame for the lack of activity in both the housing sector and consumer spending,” Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney, wrote in a report after the release. “And this weakness was further compounded by the vagaries of the weather -- which will remain a concern over the next couple of months.”

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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