Australian Retail Sales Unexpectedly Jumped in January
Australian retail sales rose unexpectedly in the month of January. At 0.2%, the rise in sales aggressively overshot expectations of a -0.5% decline in the figure. Spending was bolstered by the government's distribution of A$8.9 billion ($5.6 billion) in cash grants to families as a result of the stimulus package passed in late January. Prime Minister Kevin Rudd announced that they would continue distributing more cash. In fact, another A$12.7 billion will be sent to lower and middle-income families and individuals.
The greatest gains in spending came in the form of eating out at cafes and restaurants. This sector of the overall metric rose 2.3%, but hasn't shrunken since October. On the contrary, spending on household goods fell a substantial 4.0%, lending clues as to the underlying sentiment being felt among the public. That is, spending on durable (big-ticket) goods like washers, refrigerators, and television has probably also fallen. Furthermore, this could imply that people are reluctant to purchase such items because of the fear they may have over losing their house due to delinquencies in mortgage payments.
Australian Current Account Deficit Unexpectedly Narrows in Q4
Australia's Current Account Balance showed a narrower deficit than economists expected in the fourth quarter, printing at -A$6.5 billion versus forecasts of a -A$7.4 billion shortfall. Australia's external balance improved by an impressive 67% from a year ago as the quarterly rise in exports (8%) doubled that of imports (4%). The trade portion of the metric posted the second consecutive quarterly surplus, with the three months to September marking the first reading in positive territory in over 6 years. The capital side of the equation saw the deficit narrow 3.7% to -A$10.4 billion.
Although the headline figure certainly looks promising, it is important to note that much of the rise in export readings is likely attributed to record-high commodity prices through the first half of 2008. Companies buying Australian coal and iron ore can reasonably be expected to plan such expenditures in advance, negotiating contracts ahead of time at prevailing market prices. As these contracts expire, they will be renegotiated at significantly lower rates: coal prices have fallen a whopping 82% and iron ore has declined 57% as commodities began to tumble in mid-July. Income from overseas sales is likely to plunge as lower prices are taken into account, dwarfing export readings and eroding the surplus.
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