Retail spending, housing and trade: Dr Sarah Hunter and Dr Brendan Rynne respond to the latest figures

Retail spending on the up, but will fade in second half of year
Dr Sarah Hunter KPMG Senior Economist, comments on the latest ABS retail figures

Households managed to largely shake off cost of living pressures in March, with retail turnover rising 1.6 percent on the month (9.4 percent y/y). While some of the increase is due to rising prices, the growth in spending looks to have outpaced inflation.

Household goods and department stores saw the biggest increases in spending, up 3.4 percent and 4.1 percent on the month respectively. The continued relaxation of restrictions and a willingness to return to social settings drove a 2 percent gain in eating out.

Across the states, NSW, QLD and WA led the way, with all three seeing a recovery in spending following the floods in February. But all states apart from South Australia recorded solid increases, highlighting the broad-based nature of the strength in the economy.

While momentum in spending is currently very strong, it is likely to fade over H2 2022. Wage growth is now picking up but it won’t keep pace with headline price inflation, and interest rate rises will also put a drag on households’ disposable income. As a result, growth in spending will moderate, with discretionary products such as eating out, household goods and clothing the most exposed to the slowdown.

Volatility in high-density projects leads a fall in dwellings approvals
Dr Sarah Hunter, KPMG Senior Economist, comments on today’s ABS announcement

Volatility in the approval of high-density projects led to an 18.5 percent fall in national dwelling approvals in March. But setting this aside, the overall trends in the sector are being maintained; detached houses continue to trend down, while attached dwellings are holding broadly steady.

Across the states, NSW and Victoria led the declines in both types of building, while Queensland was a partial offset, with a 5.8 percent m/m increase in houses and a 12.4 percent rise in apartments.

The downward trend in activity in the biggest two states is consistent with the population dynamics (particularly internal net outflows to other parts of the country) and with a cooling housing market in Sydney and Melbourne.

The rise in the cash rate by the RBA on Tuesday will put a further drag on activity, as will the rising build cost for dwellings – residential construction cost inflation is currently running at almost 14 percent.

By contrast, the cost of housing in other states remains much more attainable, and with the population dynamics still favourable both house prices and new construction activity should remain robust.

Although approvals are trending down, the pipeline of residential construction work remains sizeable. But many businesses in the sector are currently being squeezed hard by rising materials costs and wages, which are set against fixed price contracts.

Operators in NSW and QLD have also had to absorb the impact of the recent floods, which has limited work days and delayed meeting milestones (and so payments) – with inflationary pressures not set to ease this year, profitability will remain a challenge for most operators in the near term.

Rising commodity prices and decline in imports lead to strong trade surplus
Dr Brendan Rynne, KPMG Chief Economist, comments on the ABS trade figures

Australia’s international trade position strengthened during March through a combination of higher commodity prices for agricultural products and a decline in imports.

Iron ore continues to drive Australia’s fortunes higher, with $11.3bn exported during March 2022 – nearly $1.85bn more in the value of iron ore exports (FOB) in February 2022, and nearly $5.5bn more in iron ore export revenues during the March quarter 2022 compared to the December quarter 2021.

The impact of the war in the Ukraine has started to feed its way through official trade statistics, with exports of wheat, cereals and other agricultural grains being around $1.5bn higher in value during the first 3 months of 2022 compared to the last 3 months of 2021. Other commodities and products recording higher export values in March 2022 due to the disruption to world markets from the Ukraine conflict include oil seeds ($307m higher in March 2022 compared to February 2022), petroleum oils ($281m), natural gas ($162m), copper ($103m), and starches ($32m).

While the this trade data is presented in current prices, the 4.3% increase in the ‘Balance on Goods and Services’ over the first quarter of 2022 suggests net exports will add positively to GDP for the March quarter. This is contrary to the US where the Advance Estimates for the first quarter of 2022 show net exports acted as a drag on the economy by around US$350 billion.

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