Australia posts record slump in retail sales

Australian retailers had their worst month in over eight-and-half years in February despite an aggressive interest rate cut and a mammoth fiscal spending package unveiled by the government.

Retail sales fell a seasonally adjusted two per cent to A$18.87 billion ($13.10 billion) in February from A$19.26 billion in January, the representing the biggest one-month drop since July 2000 when the government had introduced a goods and services tax, the Australian Bureau of Statistics said Wednesday.

Department stores sales dropped a seasonally adjusted 9.8 per cent in the month, while sales of household goods fell 3.8 per cent.

The results suggest that the fiscal stimulus has had a remarkably short-lived impact on the economy. The data also refocus attention on the Reserve Bank of Australia's board meeting next Tuesday, reviving expectations the central bank could cut its interest rate further as early as next week.

The drop in consumer demand has deepened fears that the economy contracted in the first quarter, which would confirm the first recession in Australia in nearly two decades. However, the slump is less than the 3-5 per cent forecast by most economists.

But partly offsetting the gloom yesterday were figures that the number of houses and apartments approved for construction rose a seasonally adjusted 7.8 per cent in February from January. Approvals for multi-unit projects jumped 34 per cent, helped by generous government grants for new home buyers and the lowest mortgage interest rates in decades.

Economists argue that if the housing sector can remain resilient, the contraction of the Australian economy in 2009 will be shallower than that of other major economies.

Some A$7.7 billion worth of bonus payments to 8.7 million taxpayers are due to start this month, which could give a temporary lift to sales. But with the retail sector accounting for around 23 per cent of Australia's gross domestic product and about 15 per cent of all jobs, the weakness in sales raise the risk of the first outright recession in Australia since 1991.

The February slide in sales reversed around half of the gains enjoyed in December and January, when over A$8 billion in fiscal handouts gave a temporary boost to shopping power. But with the economy skidding and unemployment jumping to four-year highs, consumers were increasingly choosing to save rather than spend.

The RBA itself on Tuesday had conceded that a lot more pain lay ahead, predicting the economy would contract over 2009.

Surveys suggest the manufacturing side of the economy has been in recession for months. A private survey of 200 firms out on Wednesday showed activity struck near record lows in March, with new orders, production and employment all falling, reports Reuters.