Australian Retail Sales Trump Expectations

Australian Retail Sales overshot expectations, expanding by 0.7% in May versus 0.1% expected. The rise was fueled by a 2.2% jump in sales of recreational goods and marks the fastest increase in 6 months. Perversely, the rise in retail activity comes in the same month that economy lost -19.7k jobs. While some may interpret this as indicative of Australians' confidence in finding new employment and thereby make a statement about the resilience of the labor market, it should be noted that some lag is to be expected before job losses translate into reduced disposable income expectations and depress consumption. For their part, currency traders bought the Australian dollar following the announcement, expecting firm consumption to bid up the price level and force the RBA to hike interest rates at their September meeting. RBA Governor Glenn Stevens held rates steady at a 12-year high of 7.25% yesterday, noting that "While the inflation outlook remains concerning, the board's assessment continues to be that demand growth will moderate this year."

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