A mini-blast of economic data for the Australian economy this week ahead of the July policy meeting of the Reserve Bank next Tuesday: inflation easing, job vacancies weakening, retail sales rising in May, and a check-up of the finances of everyday Australians revealing an important figure missed by most analysts.
The monthly inflation indicator for May showed a further easing in the headline rate to 1.6%, the lowest in 13 months, though core inflation barely moved, easing to 1.4% from 1.5% in April.
Job vacancies eased 2% in the three months to May but still came in well above 430,000, which was higher than pre-pandemic levels in February 2020.
That might just be enough to stop the central bank from boosting rates by half a percent at next Tuesday’s policy meeting – a move that became a very real possibility after the very strong labour force data for May.
But a 0.25% rise in the cash rate is still a genuine possibility and would be the third monthly rise in a row.
Of the three major data sets, the retail sales figures showing a surprise 0.7% rise in turnover in May would have been a bit of a concern for the Reserve Bank.
The Australian Bureau of Statistics said the rise followed a flat reading in April and a 0.4% rise in March, and analysis from the Bureau showed the rise was driven by increased purchases of discretionary items at under-pressure retailers like Harvey Norman, Best & Less, Baby Bunting, and Super Retail Group.
Harvey Norman confirmed the slump in discretionary goods this week when it warned of the possibility of a 25% slump in operating profit in the year to 30 June (last Saturday), which some analysts said was driven by a fall of up to 50% in the June half-year.
Ben Dorber, the ABS head of retail statistics, explained in a statement: “Retail turnover was supported by a rise in spending on food and eating out, combined with a boost in spending on discretionary goods.
“This latest rise reflected some resilience in spending, with consumers taking advantage of larger than usual promotional activity and sales events for May.
“An early start to some end-of-financial-year sales events boosted turnover along with Mother’s Day and the ‘Click Frenzy Mayhem’ sales event.
“Just as we saw during the November Black Friday sales last year, consumers appeared to take extra advantage of discounting during large sales events in May in response to cost-of-living pressures,” Mr Dorber said.
Interestingly, the ABS said turnover rose in both cafes, restaurants, and takeaway food services (up 1.4%) and food retailing (up 0.3%).
“The rise in May means that cafes, restaurants, and takeaway food services turnover is again at a record level following last month’s small fall. Food retailing has recorded a monthly rise for 16 of the past 18 months,” the ABS said. April saw a small fall as spending in the food retailing sector dipped to the lowest level in several months.
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But it was in the financial national accounts that the most surprising figure was found – and one that confirms the financial savvy of millions of Australians.
Despite cutting spending in retail (but still spending heavily on domestic and international travel), Australian households managed to save $26.3 billion in the quarter. That was down from just over $32 billion in the three months to December.
“Growth in households’ deposit assets weakened, reflecting a fall in the household saving ratio,” the ABS explained.
“Growth in deposit assets favoured other non-transaction deposit account types, such as high-interest savings accounts, whose interest rates have increased similarly to rises in the cash rate.
The ABS said this took savings to a record $655.1 billion, which is now invested in non-transferable (or non-transaction) deposit accounts such as savings and fixed-term deposits.”
“Households saw significant investment in high-interest savings deposit accounts for the first time since the beginning of the Reserve Bank of Australia’s increases to the cash target rate as banks offered interest rates comparable to those on term deposits,” the ABS said.
The net increase in deposits was $1.7 billion more than the $24.6 billion in net superannuation contributions in the quarter, which were helped by the strong labour market in the quarter.
And it wasn’t just Australian households that saved in the quarter – so did the Commonwealth government – thanks to the surge in tax revenues from the jobs boom.
The ABS said Canberra became a net lender during the March quarter because of a $7.3 billion rise in net saving. That saw the Commonwealth lend a total of $6.4 billion in this quarter.
That was the Government’s first net lending position since June 2019, according to Dr. Mish Tan, ABS head of finance statistics. “This quarter, a large increase in income tax receipts from individuals helped the Commonwealth Government into a net lending position.
Essentially, this means that the growth in the Government’s income was greater than its growth in spending, and because of that, the Government has acquired more assets than debt.”
“Individual income tax and company tax have been high over the past year, in line with the strong labour market and company profits.”
This shift to being a net lender has been helped by typical seasonal decreases in social assistance benefits and government consumption, as well as a reduction in outlays to state and territory governments.
This was reflected in the Commonwealth’s balance sheet through a $15.7 billion increase in deposit assets, a $4.9 billion rise in accounts receivable, and $4.7 billion growth in equity assets.
The ABS said, “household wealth rose 2.1% or by $299.1 billion to $14,807.8 billion.
“Household wealth increased this quarter, following a revised growth in the December quarter. This was driven by growth in households’ superannuation assets and deposits, as well as the value of residential land and dwellings.”
The improvement in savings in the March quarter means the Australian financial system is slightly stronger than a year ago and perhaps a little better equipped to meet the rising pressures from all those rate rises by the RBA and the continuing high rate of growth in cost pressure.