[CommSec Research]Extended retail slump; Building approvals rebound

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Extended retail slump; Building approvals rebound

Building Approvals; Retail trade

• Council approvals to build news homes rose by 9.1 per cent in March after sliding by a revised 5.3 per cent in the prior month. In annual terms approvals are down 18.1 per cent on a year ago. The pick up in approvals was driven by apartment approvals which rose by 26.1 per cent in March, while private sector new house approvals fell by 0.8 per cent.
• Victoria (up 26.8 per cent) accounted for the bulk of the rise in approvals in March, followed by NSW (up 8.5 per cent), while most of the weakness was centred on South Australia (down 22.5 per cent) and Queensland (down 15.0 per cent).
• Retail spending fell by 0.5 per cent in March after rising by an upwardly revised 0.8 per cent in February. Five of the eight states and territories recorded a slide in retail activity. Victoria was once again the standout performer with sales up 0.9 per cent in March.
• In the March quarter, inflation-adjusted retail trade fell was unchanged after sliding by 0.4 per cent in the December quarter. The weakness in retail spending is in line with the Reserve Bank's latest comments regarding a potential decline in real GDP over the March quarter.

What does it all mean?

• The pickup in building approvals in March could not have come at a more opportune time. Over the past few months the housing sector has pretty much come to a standstill. Housing finance has slumped since the start of the year and property prices have recorded the biggest quarterly fall in records going back almost seven years. In addition despite the nine per cent rise in the month, approvals are still down more than 18 per cent on a year ago.
• Interestingly when you delve a little deeper the rise in approvals loses some of its lustre. The rise in approvals was centred solely on a huge 26 per cent surge in apartment approvals which generally tends to be volatile and lumpy. More importantly the private sector new house segment actually eased further in March and is now down almost 18 per cent on a year ago. In fact new house approvals have now fallen for eight out of the last ten months.
• 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. And this weakness was further compounded by the vagaries of the weather - which will remain a concern over the next couple of months. 
• The retail sector has certainly done it tough over the past year. Annualised growth in sales is still subdued at just 2.3 per cent – a far cry from the decade average growth of 6 per cent. The tightening of monetary policy and unwinding of stimulus has been the key reason for the turnaround in the fortunes of the retail sector. No doubt part of the sustained weakness in the retail sales data can be blamed on lower prices, rather than weaker spending, given the widespread discounting taking place across the retail sector. However weaker volumes are clearly playing their part. Prices of some goods are coming down because our dollar is strong, but plenty of retailers are cutting prices because consumers refuse to spend.
• Overall it is quite clear that the retail activity is sluggish, especially when you consider that retail sales effectively went know where for the entire March quarter in inflation adjusted terms. The domestic economy is at present limping along and the lack of activity is consistent with the latest view portrayed by the Reserve Bank - that real GDP may have gone backwards in the March quarter. Given the potential downgrade to the Reserve Banks near term growth forecasts it is unlikely that the Reserve Bank will be raising interest rates anytime soon.
• It’s not all bad news for retailers. With the job market tight, wages rising and wealth levels tracking higher, there are good reasons for consumers to start spending again. But it will require the Reserve Bank to take an extended period on the interest rate sidelines. CommSec does not expect the next rate hike to take place till at least August at the earliest.