/www.bloomberg.com/ By Victoria Batchelor
Sydney, March 6 (Bloomberg) -- Australian retail sales rose less than expected in January, suggesting chain stores such as Coles Myer Ltd. and Franklins are bearing the brunt of an economic slowdown.
Retail sales rose 0.2 percent to A$14.48 billion ($8.9 billion) following a 0.9 percent drop in December, the largest in 2 1/2 years, the Australian Bureau of Statistics said. The median forecast of 22 economists surveyed by Bloomberg News was for a 0.7 percent increase.
The Australian dollar fell after the retail report added to signs of weakening economic growth. The worst drought in a century is crimping exports, and a housing boom that drove the economy last year is waning. The economy expanded 0.4 percent in the fourth quarter, the slowest pace in two years, figures yesterday showed.
``It is a very difficult environment at the moment,'' said Aubrey Zelinsky, managing director of Franklins, a chain of supermarkets owned by South Africa's Pick'n Pay Stores Ltd.
``The year started out very slowly for us because of high fuel prices and a drought across the state,'' he said. ``That has not only reduced the number of people who are out buying, it has affected the amount they are spending.''
Franklins competes with Woolworths Ltd., Australia's largest supermarket chain, and Coles Myer.
Drought has parched 70 percent of the country, slashing crop production and cut earnings for farmers and agricultural companies. Boosting gasoline prices in Australia, the price of crude oil traded in New York has risen 34.5 percent in the last three months because of concerns that an attack on Iraq may reduce oil exports from the Persian Gulf.
Sales Slowing
Last month, Coles Myer said sales growth slowed for a fourth quarter. Second-quarter sales rose 4.1 percent to A$7.5 billion in the 13 weeks ended Jan. 26. Under Chief Executive John Fletcher, sales growth from its more than 2,000 stores has slowed from a peak of 9.7 percent
The Australian dollar dropped to 61.44 U.S. cents at 1:30 p.m. in Sydney trading, from 61.57 U.S. cents immediately before the report was released. Bonds were little changed on the report. The yield on the 6.5 percent bonds maturing May 2013 was at 5.04 percent, up 7 basis points from yesterday.
``Today's data does remind us that the risks to growth are on the downside'' said Scott Haslem, senior economist at UBS Warburg Australia Ltd. ``If interest rates are changed this year, they will be lowered not raised.''
Interest Rates
The central bank left the overnight cash rate target unchanged for a ninth month at 4.75 percent yesterday.
Five of 22 economists surveyed by Bloomberg News expect the central bank to lower rates before the end of the year. A month ago, two forecast a rate cut this year.
The implied yield on the June 90-day bank bill futures was at 4.54 percent. That signals investors expect a quarter percentage point rate cut by mid-year.
A 2.4 percent gain in department store sales and a 0.5 percent increase in food sales led the rise in retail spending. Tempering that, sales of household goods dropped 1.3 percent and sales of clothing fell 1.5 percent.
A separate report showed jobs growth in January was revised lower to 94,000 from the 111,000 increase previously reported.
Retailers Comment
Limiting gains in spending, consumer confidence slumped 7.8 percent in February to a 21-month low, according to an index by Westpac Banking Corp.
Some companies are reporting stronger sales.
``A 0.2 percent gain is weak growth. Our own sales are exceeding that,'' said Ian Miller, chief financial officer at Miller's Retail Ltd., which sells women's clothing.
Last week, Woolworths said net income rose 17 percent in the six months to Jan. 12 to A$372 million.
``Sales for the first five weeks of the second half remain strong,'' Chief Executive Roger Corbett said in a statement. ``Supermarket sales, excluding petrol and liquor, are up more than 7 percent. Consumer electronics sales are up more than 10 percent.''