Australians still shopping, but need to spend more

By Wayne Cole

SYDNEY (Reuters) - Australian retail sales grew for the tenth straight month in March while demand for household goods lifted spending for the first quarter as a whole, though the gains fell short of what optimists had hoped for.

The Reserve Bank of Australia (RBA) cited the need to support consumer demand as one reason it cut interest rates to an all-time low of 2.0 percent on Tuesday.

A sustained pick up in spending is desperately needed to offset the deepening drag from weak export prices and a downturn in mining investment.

Wednesday's data from the Australian Bureau of Statistics went only some way to meeting requirements.

Retail sales rose 0.3 percent in March from February, while analysts had looked for a rise of 0.4 percent. Annual growth of 4.5 percent was solid but short of its long-term average.

Inflation-adjusted sales for first quarter also missed forecasts with a rise of 0.7 percent, partly due to a swing higher in goods prices.

"Neither is particularly weak, but sales growth is not showing the sort of convincing strength the RBA would be looking for," said Matthew Hassan, an economist at Westpac.

The central bank will be able to expand on its thinking when releasing updated forecasts for economic growth on Friday. So far, markets see scant chance of another policy easing in the next couple of months and imply around a 40 percent chance of a move by Christmas <0#YIB:>.

Among the retail sectors faring best in the first quarter were clothing, restaurants and household goods.

Sales in the latter were up 9.5 percent for the year amid a rush to furnish new homes or renovate existing ones.

That trend has a while to run given approvals to build new homes have shot to record highs led by an historic shift toward apartment living.

Sales of new homes jumped 4.4 percent in March to their highest since early 2010, according to a survey of major builders by the Housing Industry Association (HIA).

“Lower lending rates will provide added support to residential construction activity, which is emerging as a key area of growth mitigating the effects of the downturn in mining investment and construction," said HIA economist Diwa Hopkins.

(Editing by Kim Coghill)