Australia's Retail Sales Rise More-Than-Expected 0.7% (Update1)

By Jacob Greber


July 2 (Bloomberg) -- Australian retail sales rose at the fastest pace in six months in May as consumers spent more on food and recreational goods.

Sales climbed 0.7 percent from April, when they fell a revised 0.1 percent, the Bureau of Statistics said in Sydney today. The median estimate of 24 economists surveyed by Bloomberg News was for a 0.1 percent gain.

Increased spending suggests households are weathering the highest interest rates in 12 years, record gasoline costs and the first drop in employment in 19 months. Reserve Bank Governor Glenn Stevens left the benchmark interest rate at 7.25 percent yesterday, saying the economy will moderate this year.

``Official rates were unchanged in May,'' Bill Evans, chief economist at Westpac Banking Corp. in Sydney, said ahead of today's report. ``Retailers also brought forward winter sales.''

The Australian dollar climbed to 95.71 U.S. cents at 11:38 a.m. in Sydney from 95.47 cents before the figures were released. The two-year government bond yield rose 5 basis points, or 0.05 percentage point, to 6.91 percent.

Spending at recreational goods retailers gained 2.2 percent in May, while food sales increased 1 percent, the report showed.

Households may curb spending in coming months amid signs the nation's 17-year economic expansion is slowing.

Employment fell in May, ending the longest run of monthly job gains since 1978, consumer confidence dropped in June and businesses remained pessimistic for a fifth month.

`Growth Will Moderate'

``While the inflation outlook remains concerning, the board's assessment continues to be that demand growth will moderate this year,'' Stevens said yesterday.

Goodyear Tire & Rubber Co., the U.S.-based tire maker, said last week it will close a Melbourne factory and fire 600 workers. Qantas Airways Ltd., the nation's largest carrier, announced plans last month to scrap regional routes and cut hundreds of jobs.

Consumer and investor sentiment is also being battered by crude oil prices, which hit a record $143.67 a barrel this week, and tumbling stock markets.

Australia's benchmark S&P/ASX 200 Index has slumped 19 percent this year, and the Dow Jones Industrial Average had its worst June since the Great Depression.

Hiring from a mining boom and income-tax cuts may shore up spending.

Hiring by resources companies including Rio Tinto Group, which is expanding to meet surging Chinese demand for iron ore and coal, has pushed unemployment close to the lowest in more than three decades.

The central bank expects Australia's terms of trade, a measure of income from overseas sales, to surge 20 percent this year. The increase ``will add substantially to national income and ability to spend,'' Stevens said yesterday.

Also, some A$33 billion ($32 billion) in income-tax cuts over four years that took effect from yesterday will add an extra A$20 a week in take-home pay for average wage earners.