In Australia, as elsewhere, there's no such thing as a free lunch.
The strong Australian dollar has left the hospitality and retail industries on the wrong side of the country's two-tier economy. But government data shows May was better than expected for stores and, especially, eateries.
It's too early to read a long-term trend from these data points, though. A surprise 0.50 percentage-point interest-rate cut in the month lowered mortgage payments for Australian households. Federal government stimulus checks for families also improved the mood. J.P. Morgan Chase notes that May saw the first government handouts to families to offset the impact of its carbon tax compensation—a move that "muddies the waters on underlying income," the bank says. Commonwealth Bank estimates that without fiscal stimulus, total retail sales would have been a "much more anemic 0.1% to 0.2%" in May.
Australia's retailers will need more than a good month to turn around their flagging fortunes. An increasing number of Australians are taking advantage of their strong currency to buy goods from overseas online shopping sites for less. Traditional retailers are discounting to compete, but that is hurting margins. Department store chain David Jones DJS.AU +2.15% saw profits fall 20% in the first half from a year ago. Meanwhile, employment across the consumer sector has declined "sharply" in the year to May, says Westpac.
Australia's position is still better than that of most developed nations. The country's central bank has room to cut rates further and help household spending. But there are risks—a sharper slowdown in China's economy would hurt the resources sector, which would have a knock-on effect throughout the economy.
Australians were feasting in May. Retailers will hope they've held back some appetite for the rest of the antipodean winter and beyond.
