Data just out shows why the RBA can say domestic demand is improving, and still cut rates

There is a strange thing in economics and in forecasting data. The pundits, media and traders focus on where the print of the data release is relative to “expectations” but there is not often any discussion of whether or not the data was actually good, bad or indifferent.

That’s certainly been the case this morning with the release of Australia’s retail sales for march. Coming in at just 0.3% the data ‘missed’ expectations of a 0.4% print.

But, as Michael McCarthy from CMC markets said on Sky Business soon after the release the strength of this number is the fact that Australian retail sales have now grown for 12 months in a row. That flies in the face of weak consumer confidence for much of this period since last year’s Budget.

0.3% might sound low but given it is another positive growth number the recent improvement has arrested the decline in 12 and 3 month rates of growth in retail sales which is why the RBA felt confident to say yesterday that there had been “improved trends in household demand over the past six months.”

But my favourite indicator of discretionary spending – spending on cafe and restaurants – fell heavily dropping 1.1%. That’s the second month in a row. To me that suggests enduring caution at a consumer and household level.

The RBA is rarely wrong when it comes to monetary policy, as this data suggests.

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