Retail spending, building approvals rise

4 Oct 2012, 4:36 pm   -   Source: AAP

One of Australia's leading economists has warned it will take another three interest rate cuts to get consumers spending again.

Falling interest rates have failed to revive the fortunes of struggling retailers, with one leading economist warning it may take another three rate cuts to get consumers spending again.

Retail spending rose by just 0.2 per cent in August, seasonally adjusted, after dropping 0.8 per cent in July, figures released by the Australian Bureau of Statistics on Thursday show.

That's despite the Reserve Bank of Australia (RBA) cutting the cash rate four times between November 2011 and June 2012.

The RBA moved again on Tuesday, dropping the cash rate another quarter of a per cent to 3.25 per cent.

"It's not the sort of strength you'd normally want to see this far into a rate cutting cycle," AMP chief economist Dr Shane Oliver told AAP.

Mr Oliver said rates were still too high to stimulate the economy and another three rate cuts may be needed to get Australian consumers to open their wallets again.

"The average mortgage rate offered by the big four banks is currently around 6.8 per cent, I'd regard that as a 'neutral' level," he said.

"In the last two easing cycles mortgage cycles fell as low as 6.0 per cent and I think we need to go back to those lows to see a decent pick-up coming through."

Futures markets are currently pricing in three more rate cuts by June 2013 and Mr Oliver expects the RBA to move again at its November board meeting.

Australia's big four banks - Commonwealth, Westpac, ANZ and National Australia Bank - have yet to respond to Tuesday's rate cut decision but retailers on Thursday again called on them to pass it on to mortgage-holders in full.

"The bottom line is the banks need to ante-up. That interest rate cut needs to be passed through to consumers," Australian National Retailers Association chief Margy Osmond told reporters.

According to the ABS figures, department stores fared best in August, with sales up 6.9 per cent, albeit after a 10.1 per cent fall in July.

The weakest performers were household goods retailing (down 1.5 per cent, and Cafes and Restaurants (down 0.9 per cent.)

Meanwhile, the rate cuts from November to June are also yet to provide a boost to the flagging housing construction sector, despite an improvement in August.

ABS figures on Thursday showed building approvals rose 6.4 per cent in August, after dropping 21.2 per cent in July.

JP Morgan economist Ben Jarman said the underlying trend in the sector remained soft.

"I just think it really establishes the old levels which prevailed in previous months," he told AAP.

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