By Jacob Greber
June 1 (Bloomberg) -- Australian retail sales advanced for a second month, new home sales gained for a fourth month and manufacturing shrank at a slower pace, providing evidence that the nation’s recession may be easing.
Retail spending rose 0.3 percent in April from the previous month, the statistics bureau said today. Sales of newly building dwellings gained 0.5 percent from March, the Housing Industry Association reported. A performance of manufacturing index climbed 7.4 points to a seven-month high of 37.5 in May, according to data compiled by the Australian Industry Group.
The economy is being buttressed by the lowest borrowing costs in half a century and record government spending, including cash handouts to consumers of as much as A$950 ($765). The central bank will probably keep the nation’s benchmark interest rate unchanged tomorrow at 3 percent to gauge whether the stimulus measures are enough to revive Australia from its first recession since 1991, according to a survey of economists.
“There is a lot more positive data flowing,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “You’re seeing that the government stimulus policies are having an impact.”
Today’s reports suggest “Reserve Bank rates are on hold over the next few months,” he added.
The Australian dollar bought 80.47 U.S. cents at 1 p.m. in Sydney from 80.51 cents before the reports were released at 11:30 a.m. The S&P/ASX 200 stock index rose 1.3 percent to 3,867.4, led by banks and exporters. The two-year bond yield fell 1 basis point, or 0.01 percentage point, to 3.56 percent.
Sales Climb
Purchases of household goods jumped 3.9 percent in March from April and consumers spent 0.8 percent more on clothing.
Woolworths Ltd., Australia’s largest retailer, said last month that sales surged 6.5 percent to A$12.3 billion in the three months ended April 5.
Sales of newly built detached housing jumped 1.1 percent in April from March, the Housing Industry Association figures showed. Demand for homes is being stoked by government grants to first-time buyers of new dwellings of as much as A$21,000.
“The leading indicators point to housing as an emerging bright spot in the economy,” HIA Chief Economist Harley Dale said in Canberra.
To revive the economy, the central bank cut its benchmark rate by a record 4.25 percentage points between early September and April to 3 percent. The government has been distributing more than A$12 billion to lower-income earners, with most of the cash handed out in April.
Treasurer Wayne Swan, in the government’s annual budget last month, unveiled a A$22 billion program of spending on roads, rail, ports, hospitals and education.
China Recovery
The nation is in a good position to benefit from a global recovery later this year as interest-rate cuts drive domestic demand and a pickup in China stokes exports, Reserve Bank Governor Glenn Stevens said on May 19.
Manufacturing in China expanded for a third month in May, a sign that Australia’s largest trading partner is recovering from its deepest slump in almost a decade, a government report in that country showed today.
Not all data today signaled a stronger economy. Australian business profits fell for a second consecutive quarter amid a slump in earnings for manufacturers, miners and property companies.
Gross operating profits decreased 7.2 percent in the three months ended March 31 from the fourth quarter, more than the median estimate of a 4.5 percent decline in a Bloomberg News survey of economists.
Difficult Times
Profit at BHP Billiton Ltd., the world’s largest mining company, dropped 57 percent in the six months ended Dec. 31 on costs to close mines and plants after metal prices slumped.
“We are suffering from the current market environment,” Chief Executive Officer Marius Kloppers said on May 27. BHP doesn’t “expect a sharp rebound as our view is that overall world economic recovery will be slow and protracted.”
Australia’s economy is forecast by the central bank to shrink 1 percent this year as companies pare investment and fire workers. Gross domestic product will expand 2 percent the following year, the bank predicted last month.
The economy probably contracted 0.2 percent in the first quarter from the previous three months, when it shrank 0.5 percent, according to the median estimate of 18 economists surveyed by Bloomberg News. The GDP figures are due June 3.
“Australia’s recession is intertwined with a massive business investment overhang, buckets of spare capacity and, of course, depressed global conditions,” said Annette Beacher, an economist at TD Securities Ltd. in Singapore.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
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