2 more reasons for the RBA to stay on hold

Retail trade falls for 2nd consecutive month
Retail trade fell by a seasonally adjusted 0.1% in May, a second straight monthly fall after April's 0.1% rise was revised to a 0.3% fall. Economists had expected a 0.7 % increase for May. A surprising result given low unemployment, rising consumer confidence and the May budget tax cuts.

However the Australian National Retailers Association claims the unseasonably warm weather in April and May meant consumers put off buying winter clothes. Also consumers in NSW and Victoria were also more cautious about their spending, reflecting the higher mortgage commitments for consumers in Sydney and Melbourne. I'm always dubious when the weather is mentioned as an excuse for poor numbers.

The two months of consecutive falls follows ten months of increases so it could be that consumers are taking a breather in the face of higher petrol prices. With high employment and the tax cuts starting to kick in consumer spending has plenty of catalysts to get it going again in the near term.



Building Approvals at lowest level in 6 years


Building approvals fell a seasonally adjusted 5.6% in May to their lowest level since April 2001 and are 7.2% lower than a year ago. Like the retail numbers economists were taken by surprise as they expected a 1.4% fall after the 8.1% increase in April.

A blowout in construction costs was seen as the culprit as homebuilders are finding it less attractive to bring new supply onto the market and consumers opt for existing homes over the rising cost of new homes.

It must be remembered that approvals data are volatile particularly for the apartments and townhouses sector however clearly the housing market is suffering from rising construction costs and affordability at it's lowest level in years.

Today's data releases take some steam out of the notion that the economy is overheating and in need of an interest rate rise in the near term. Still, with strong global growth and robust domestic demand interest rate risks remain on the upside. Will it be enough for the RBA to raise rates again before the end of the year? Most economists seem to think so although for myself the jury is still out.