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Fastest growth in Victorian spending in 2 years Record commercial buildingRetail Trade; Building approvals; Consumer sentiment
Retail trade: Retail trade rose by 0.6 per cent in February after rising by an upwardly revised 0.2 per cent in January (previous up 0.1 per cent). Annual sales growth lifted from 2.1 per cent to a 7-month high of 3.0 per cent.
Victorians spend: Over the year to February, Victorian retail spending rose by 5.8 per cent – the fastest rate of growth for over two years.
Building: Council approvals to build new homes fell by 6.2 per cent in February after rising 17.2 per cent in January and falling 20.7 per cent in December. Annual commercial building approvals stand at a record high of $47.6 billion.
Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating fell by 1.6 per cent to 115.5. Confidence is up by 0.6 per cent over the year and above the average of 113.6 since 2014 and average of 112.9 since 1990.
Inflation expectations rising: Consumers’ inflation expectations rose to 4.7 per cent last week, up from 4.3 per cent in the previous week. This is the equal highest reading in 14 months. Retail trade data is important for consumer-focussed companies. The approvals data has implications for banks, retailers, developers, building and building material companies. The consumer confidence figures have implications for retailers, and other consumer focussed businesses. 
What does it all mean?
So much for the imminent ‘death’ of bricks and mortar retailing. Yes, Amazon has launched. Myer is struggling. Costco is adding more warehouses. And in the supermarket space, German grocery giants’ Kaufland and Lidl are due on Aussie shores soon. But the re-acceleration inconsumer spending gives retailers hope.
The Commonwealth Bank’s Business Sales Indicator has been pointing to a lift in traditional retail spending in recent months. Today’s release by the Bureau of Statistics is confirmation that consumers have their mojo back.
Better job security, price discounting by retailers and record low interest rates are encouraging Aussies to spend rather than save. Retailers are hiring too. Job vacancies are increasing despite global competition.
Victoria is on a tear. Melbourne’s strong population growth, combined with buoyant manufacturing and construction industries are behind a resurgence in retail spending.
The ‘old story’ was a boom in home building. The ‘new story’ is a lift in commercial building. Over the year to February, commercial building approvals hit a record $47.6 billion, up 17 per cent over the year. And it’s not just offices being built, but schools, aged care facilities, factories and warehouses. In fact approvals to build both education and aged care facilities are up more than 40 per cent over the year. The outlook for the construction sector is very positive.
Consumers have reportedly become less confident in recent weeks but the Aussie economic backdrop has not fundamentally changed. Record jobs growth is being supported by the best business conditions ever. Activity in the services and manufacturing sectors are buoyant. Interest rates are at record lows and will stay that way for some time. Prices of goods are declining as competition intensifies in the retail space.
Rather, Aussie consumers have become more wary due to global issues. Sharemarkets have slid due to fears of a US-China trade war, Facebook’s data scandal and President Trump’s increasing twitter attacks on Amazon’s business practices.
Aussie households are also acutely aware that tariffs could lead to higher inflation. Inflationary expectations picked-up last week. US factory input prices (ISM manufacturing input prices gauge) rose to 7-year highs in March. Downstream consumers of steel and aluminium (i.e. auto manufacturers) will be adversely impacted by trade barriers.
What do the figures show?Retail trade
Retail trade rose by 0.6 per cent in February after rising by an upwardly-revised 0.2 per cent in January (previous up 0.1 per cent). Annual sales growth lifted from 2.1 per cent to a 7-month high of 3.0 per cent.
Non-food retailing also rose by 0.8 per cent in January to be up 3.3 per cent over the year – the equal strongest growth rate in eight months.
Spending rose the most for Liquor retailing (up 2.1 per cent); Furniture, floor coverings, houseware and textile goods retailing (up 2 per cent); Footwear and other personal accessory retailing (up 1.6 per cent); Department Stores (up 1.5 per cent); Takeaway food services (up 1.5 per cent); and Hardware, building and garden supplies (up 1.5 per cent).
Spending fell the most for Newspaper and book retailing (down 5.7 per cent). Other recreational goods retailing was flat.
Spending mostly increased across Australian states and territories in February: NSW (up 1.1 per cent); Victoria (up 1.1 per cent); Northern Territory (up 1.1 per cent); South Australia (up 0.7 per cent); ACT (up 0.5 per cent); and Tasmania (up 0.3 per cent). Western Australia (down 0.6 per cent) and Queensland (down 0.3 per cent) lagged.
Sales by chain-store retailers and other large retailers rose by 0.6 per cent in February to stand 5.5 per cent higher over the year.
Building Approvals:
Dwelling approvals fell by 6.2 per cent in February after rising 17.2 per cent in January and falling 20.7 per cent in December. House approvals rose by 2.3 per cent to 2-year highs. Apartment approvals fell by 14.8 per cent.
In trend terms, approvals fell by 0.1 per cent, the fifth straight decline.
Over the past year 224,203 new homes were approved, down from the record high of 242,829 inthe year to August 2016.
Dwelling approvals across states/territories in February: NSW (+2.8 per cent); Victoria (-12.9 per cent); Queensland (-3.7 per cent); South Australia (+12.9 per cent); Western Australia (-28.9 per cent); Tasmania (-17.6 per cent). Trend terms: Northern Territory (-7.2 per cent); ACT (-18.7 per cent).
The value of all commercial and residential building approvals rose by 4.1 per cent in February but was down 3.6 per cent on the year. Residential approvals fell by 4.3 per cent with new building down by 5.3 per cent, while alterations & additions rose by 4.1 per cent. Commercial building rose by 22.6 per cent in February after falling by 20.2 per cent in January.
Over the year to February, building approvals totalled $124.6 billion, down from the record high of $125 billion in the year to January. Annual commercial building approvals stand at a record high of $47.6 billion. 
Consumer Sentiment
The weekly ANZ/Roy Morgan consumer confidence rating fell by 1.6 per cent to 115.5. Confidence is up by 0.6 per cent over the year and above the average of 113.6 since 2014 and average of 112.9 since 1990.
Four of the five components of the index decreased in the latest week:
The estimate of family finances compared with a year ago was down from +6.5 to +5.6;
The estimate of family finances over the next year was down from +30.2 to +27.2;
Economic conditions over the next 12 months was up from +1.8 to +2.5;
Economic conditions over the next 5 years was down from +8.7 to +7.5;
The measure of whether it was a good time to buy a major household item was down from +39.9 to +34.8.
The measure of inflation expectations 2 years ahead increased to 4.7 per cent from 4.3 per cent.
What is the importance of the economic data?
The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels. 
The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourn Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
What are the implications for interest rates and investors?
The Reserve Bank isays there is “uncertainty” around household consumption due to weak income growth. But in a positive development, retail sales rebounded in February with spending at department stores and clothing & footwear both picking-up. Spending on liquor, hardware, furniture and on electrical goods (i.e. air-conditioners) also strengthened.
Consumer confidence remains resilient in the face of modest wages growth and share market volatility. Record low interest rates and strong jobs growth are supporting household budgets.
Residential building is flattening out at a historically-high level. Townhouses though are the new black. And also filling up builder order books are commercial projects. So much so that commercial building approvals are at record highs and account for the highest share of approvals in 3½ years.
CommSec expects interest rates to be unchanged until at least the December quarter.
Published Ryan Felsman, Senior Economist, CommSec