The housing sector appears to be the only shining light for the economy.
New figures show building approvals for homes leapt by a stronger-than-expected 9.9 per cent in May, the biggest rise in nine months.
The news from the Australian Bureau of Statistics will be welcomed by the Reserve Bank, which sees housing as one of the key sectors that will power economic growth as the mining investment boom fades.
Economists believe the strength in the housing sector could help retailers, who have been struggling with lower sales due to the warm start to winter and consumer worries about the government's budget spending cuts.
Separate data from the ABS on Thursday showed retail sales fell for a second month in a row, down by a larger-than-expected half per cent in May.
Several retailers including Kathmandu, Noni B and The Reject Shop have warned of sales slumps recently, blaming the warm weather and the budget.
The ABS figures showed clothing and footwear sales dropped 2.3 per cent in May, while department store sales tumbled 2.6 per cent.
CommSec economist Savanth Sebastian said the sales drop could force retailers to slash prices to entice shoppers to start spending.
Some might also benefit from the strength in the housing sector, which has bounced back from three months of declines.
"On a positive note, the strength in housing activity should support housing dependant retailers over coming months," he said.
"Low and stable interest rates and the lift in wealth levels should support consumer spending and help to partially offset the concerns surrounding the federal budget."
Australian National Retailers Association chief executive Margy Osmond said consumers had been spooked by the budget and its proposed cuts to family benefits.
"With many aspects of the budget facing a battle to get through the Senate and ongoing uncertainty, we wouldn't expect retail sales to bounce back for a few months yet," she said.
JP Morgan economist Ben Jarman said strong retail spending over Christmas was never going to be sustained.
But he believed the RBA would be "pretty comfortable that housing is going to do fine".
"The annual rates in building approvals have passed their peak but the levels are consistent with dwelling investment being one of the more positive contributors to growth this year and probably into next year," he said.
"There remain decent gains for home-building in the pipeline for the remainder of the year.
"This will at least offset some of the deceleration expected in exports and consumption."
Mr Sebastian said the boost in housing construction will increase supply and stop housing prices from rising too fast.
"All this seems to point to rates on hold and even the potential that the RBA could deem another rate cut necessary if this trend continues," he said.
Share
