Jobs growth to drive retail sales

Consumer confidence buoyed by strong jobs growth will provide a firm foundation for retail spending over the next two years. While that good news for retailers, the latest Access Economics Retail Forecast report also states there are “plenty of factors which will stop retail sales from being spectacular.” Chief among them is rising interest rates, with four official rate rises so far demonstrating the confidence the Reserve Bank has in the Australian economic recovery (and the potential inflationary pressures it otherwise sees). Those rate rises (and more to come in 2010) will directly eat into incomes, as well as detract from house price growth and consumer confidence, according to AE director David Rumbens. Real retail sales growth over the year to December 2009 came in at a respectable (though below trend) 3.4%. Retail sales results for January show that the sector started the new year in fine style with sales in nominal terms increasing by 1.2% in the month. Department stores were the standout here, though this followed a weak end to 2009. By financial year, real (inflation-adjusted) retail sales is expected to grow by 2.6% in 2009-10 and 2.7% in 2010-11, with stronger growth of 3.8% returning in 2011-12 during the peak of the next housing construction upswing. By state, NSW led the way in terms of retail sales growth over 2009, helped by interest rate cuts going further in mortgage-heavy Sydney than elsewhere.