Handouts keep Aussie shop tills ringing

Australia's retail sales increased by twice as much as economists estimated in May, buoyed by spending at department stores, clothing outlets and restaurants.

Sales gained 1 per cent from April, when they rose 0.3 per cent, the Statistics Bureau said in Sydney yesterday.

The Government has given A$12 billion ($15 billion) in cash handouts to households this year to help the nation withstand the global recession.

Australia was one of the few major economies, with China and India, to expand in the first quarter as the handouts and the lowest interest rates in 49 years spurred demand. Retailers David Jones and JB Hi-Fi have both raised their profit forecasts because of a pick-up in sales.

"Sales have been assisted by the Government's stimulus package, and we may see a similar boost following the income-tax cuts which take effect from today," said Su-Lin Ong, senior economist at RBC Capital Markets in Sydney.

"The litmus test for the consumer will come later this year when the fiscal candy runs out and unemployment rises."

The latest tax cuts range from an extra A$5.70 a week for people earning A$60,000 to A$41 for those on more than A$180,000.

Australia's economy grew 0.4 per cent in the first quarter from the previous three months, as increased household spending made up for a decline in business investment.

By contrast, Japan's gross domestic product contracted 3.8 per cent from the fourth quarter and US GDP shrank an annualised 5.5 per cent.

Separate Australian reports yesterday showed home-building approvals fell 12.5 per cent in May, the first drop in four months, and job vacancies for skilled workers declined 3.7 per cent in June, signalling areas of the economy remain weak. May's retail sales gain compares with a median estimate for a 0.5 per cent increase in a Bloomberg survey of 20 economists.

Sales at department stores jumped 5.5 per cent from the previous month, spending on clothing rose 2.9 per cent and sales at restaurants and cafes advanced 1.4 per cent.

David Jones said yesterday that net income would climb by 20 per cent to 30 per cent in the six months ending July 25. Australia's second-biggest department store operator previously predicted profit would be little changed.

"The confidence that has come from the stimulus package and the stock-market stabilisation is good for all retailers," David Jones chief executive officer Mark McInnes said.

"History has shown that we are first in and first out of a downturn."

Adding to signs of strength, consumer confidence jumped by the most in 22 years in June, and business sentiment in May had the biggest gain since 2001.

The International Monetary Fund increased its Australian economic forecasts last week as stimulus measures take effect.

The economy would shrink 0.5 per cent this year, less than a 1.4 per cent contraction predicted in April, the fund said. Gross domestic product would expand 1.5 per cent in 2010.

Central bank Governor Glenn Stevens said last month that the economy was "well placed" for expansion as Government spending and lower borrowing costs provide stimulus.

- BLOOMBERG