Economy

Fresh Data Highlights Retail and Housing Market Strength

Published February 2, 2025

On February 2, 2025, new retail sales numbers have surprised analysts with their strength, potentially complicating expectations for an interest rate cut by the Reserve Bank of Australia. Despite this development, many in the market remain convinced that relief for mortgage holders is on the horizon.

Prior to the latest retail figures, traders were anticipating a greater than 90 percent likelihood of a 25 basis point rate cut on February 18. This expectation was fueled by a weaker-than-expected inflation report released at the end of January. As such, all eyes are now on the Australian Bureau of Statistics (ABS), which is set to release retail spending data for December on Monday.

In addition to retail data, analysts will look for insights into the housing market when CoreLogic publishes its home value index. This index will provide clarity on whether the current housing downturn has continued into January. Mixed indicators have previously suggested a decline in home values, with predictions of a 0.1 percent drop matching December's figures.

Though retail turnover might see a decline following brisk Black Friday sales that boosted figures in October (+0.5 percent) and November (+0.8 percent), experts from NAB, including economists Tapas Strickland and Taylor Nugent, argue that it is unlikely to significantly shift the RBA's perspective.

Additionally, economic activity in the housing sector may not provide the stability that many hope for. While the federal government aims to construct 1.2 million new homes within five years, a shortage of new housing supply may keep home values steady despite a recent rise in building activity and dwelling approvals.

The ABS is also expected to announce building approval figures for December, revealing a gradual upward trend from early 2024. However, the November tally of 14,998 approvals remains significantly below the 20,000 monthly target necessary to achieve the government's ambitious housing goals.

Market developments in the United States are also drawing attention. Non-farm payroll data scheduled for release is set to highlight the tight labor market, which currently stands at 4.1 percent unemployment.

Recent movements in US stocks, influenced by tariff announcements from the White House and a competitive tech landscape, have caused fluctuations in market confidence. The Dow Jones Industrial Average fell by 337.47 points, closing at 44,544.66, while the S&P 500 and the Nasdaq Composite recorded similar declines.

Conversely, the Australian stock market has shown resilience and recently achieved record highs. The benchmark S&P/ASX200 index rose by 38.6 points to reach 8,532.3, surpassing a previous record set just a few weeks prior.

In summary, as retail figures show unexpected strength, the landscape for central bank decisions may be shifting, but the outlook for housing supply and mortgage relief continues to dominate discussions among investors.

retail, housing, economy