OZ Retail Sales Grow
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Australia’s retail sales rose in July as income tax cuts and a pickup in jobs growth buoyed spending, countering the effect of higher interest rates.

Retail sales gained 0.6 percent from June, when they climbed a revised 0.9 percent, the Bureau of Statistics said in Sydney today. The median forecast of 26 economists surveyed by Bloomberg News was for a 0.5 percent increase.

Employers hired an extra 50,000 workers in July, the jobless rate was at a 30-year low and income tax cuts worth A$36.7 billion ($28 billion) took effect. This overwhelmed the effect of the Reserve Bank of Australia’s May interest-rate increase. Rising consumer spending may fuel faster economic growth and heighten expectations the central bank, which raised borrowing costs again in August, may move a third time this year.

“In July, we saw employment growth, a low jobless rate and tax cuts. It was a good month for consumers,” Jonathan Cavenagh, an economist at Westpac Banking Corp. in Sydney, said before the report was released.

“The May interest-rate increase didn’t slow the momentum of the economy. The August one will bite harder, but the effect will still be fairly muted.”

The Reserve Bank’s two quarter-point increases took the overnight cash rate target to a 5 1/2-year high of 6 percent.

Seventeen of 28 economists surveyed by Bloomberg News on Aug. 25 expect the bank will raise the benchmark rate again this year to stem inflation and cool household spending.

Annual Inflation

The annual inflation rate was 4 percent in the second quarter, the first time it has breached the central bank’s target band of between 2 percent and 3 percent in more than three years.

Consumer spending accounts for 60 percent of the Asia-Pacific region’s fifth-largest economy. It contributed 0.6 percentage points to Australia’s first-quarter growth rate of 0.9 percent.

Retail sales “appear to be on a firmer trend than last year,” the Reserve Bank said in its quarterly statement on monetary policy on Aug. 4.

“The tax cuts that came into effect in July, coupled with growing employment, will boost household incomes and should add to spending in the second half of the year.”

The economy added more than 150,000 jobs in the three months to July 31, and the jobless rate is 4.8 percent, the lowest since August 1976.

Wages grew 4.1 percent in the year to June 30, just below the record 4.2 percent pace through most of last year.

Tax Cuts

The government’s income tax cuts, which took effect on July 1, return about A$40 a month to a person on average weekly earnings of A$56,000.

That exactly offsets the effect of the May interest-rate increase on an average mortgage of A$250,000.

Those earning A$150,000 a year will have their annual tax bill cut by 11 percent, according to the government.

Sales of at department stores rose 7 percent in July, today’s report showed. Spending on household goods climbed 1.2 percent and clothing sales gained 0.6 percent.

“The broader retail cycle appears to be trending upwards,” Mark McInnes, chief executive officer of David Jones Ltd., Australia’s second-biggest department store chain, said on Aug. 15.

Some retailers are reporting double-digit sales growth. Woolworths Ltd., the country’s largest grocery chain, said sales climbed 20 percent in the 12 months to June 30 from a year earlier.

Sales will rise between 8 percent and 12 percent in 2007, the company said on Aug. 21.

Job Security

JB Hi-Fi Ltd., an electronic-goods retailer, increased second- half profit 42 percent on sales of flat-screen television and computer games.

Consumers are “not frightened about losing their jobs,” JB Hi-Fi’s chief executive officer, Richard Uechtritz, said in an Aug. 16 interview. “Young people who come into our stores don’t have mortgages so will continue buying our products.”

The Reject Shop Ltd., a Melbourne-based discount retailer with 114 stores, said sales rose 17 percent in the year to June 30 from the previous year. Profit will increase 20 percent in the coming year, the company said on Aug. 16.