Low interest rates are working as economy clicks into gear

Some interesting data suggests that low interest rates are working their magic and consumers are enjoying the spoils of low mortgage repayments.

Retail trade punchy

Source: ABS

Very nice results, as trend retail sales rose by 0.6% month on month in December or 0.5% month on month seasonally adjusted.

Reported the ABS: "The seasonally adjusted estimate rose 0.5% in December 2013. This follows a rise of 0.7% in November 2013 and a rise of 0.5% in October 2013."

This is another punchy retail print which suggests that consumers are getting into the swing of things.

As you can see, things were pretty slow in early 2013, but over the past six months retails sales are humming along at an annualised pace of 6.5%, which is a very solid rate of growth.

Note that we have had five straight months of growth at 0.5% or above, which hasn't happened since 2003, when we were in property boom-time.

Michael Pascoe made some interesting observations over at the Sydney Morning Herald where he advises that rather than listen to the complaints about Aussies 'doing it tough', we should look at the story that the actual numbers are telling:

"Instead of nervously counting our pennies in the face of 'cost of living' headlines, what we’re doing is eating out much more and keeping baristas employed. The star sector within retail continues to be restaurants, cafes and fast food outlets, as the accompanying graph shows.

"On the raw original number, we spent $3,523 million eating out in December, 10% more than in December, 2012. On the trend series, the growth was 8.2 per cent and the seasonally adjusted series scored 8.3 per cent growth."

He's not wrong.

Here is the chart showing the growth in the cafe, restaurant and takeaway food services sector (I like to think that I have contributed here in own my small way!).

Source: ABS

Exports flying

Then came a pleasant surprise with the trade data – a second month of surplus for the Aussie economy.

No prizes for guessing where the surplus was sourced from: a large surge in iron ore exports to China, with export values roaring up to a new record high, both for iron ore and for China exports in aggregate.

Let's hope those commodity prices stay healthy as we continue to move into the production phase of the mining boom and the economy can really start to pick up.

Only a mug tries to pick the GDP result, but throw in a a pick up in housing construction and you might start to be looking at a decent result when Q4 print is released in March.

Markets

And what of the impact on markets?

Well, share markets were cheered at last, the XJO (ASX 200) jumping into the green by more than 1.1% at the time of writing.

Currency markets seem increasingly certain that the economy is picking up, the unemployment rate will start to fall, and that we have seen the last of the interest rate cuts for the cycle.

The Aussie dollar is all the way back up at 89.7 cents.

As for property markets, well, they have not really shown any signs of cooling at all.

In fact, if you drill into the data, you will be able to identify some of the trademark signs of an imbalanced market.

SQM Research's Louis Christopher has highlighted how Sydney's stock on market has collapsed by 17% year on year to its lowest level since the stock on market index was created.

Boom-time looks set to continue in the harbour city.

On the flip side, Darwin has 25% more stock on market than a year ago, which is likely to stall the market, says Christopher.

Source: SQM

Meanwhile, RP Data's Cameron Kusher updated his time on market index, and found that time on market has fallen to the lowest levels on record.

Dwellings not sold at auction are selling faster than we have seen recorded before (28 days for houses and 35 days for units).

Sydney has led the way in this index in recent history too.

Source: RP Data

All in all, the evidence suggests that no more interest rate cuts appear necessary. Now, we just need to employment figures to pick up an the economy could be off and running.

Pete Wargent is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.

His new book 'Four Green Houses and a Red Hotel' is out now.