Federal budget not the only game in town, with Thursday's employment data the next key tracking indicator: Craig James

The government would like you to believe that the federal budget is the most important event this week, but Craig James, the CommSec economist, says data on retail spending and employment are the highlights.

James noted the retail spending showed a rise of 0.9% in March, the strongest gain in 11 months.

After adjusting for inflation, retail trade rose by 1.8% in the March quarter, the biggest gain in almost three years.

“Australia’s retailers have finally something to celebrate,” James says.

“No one will be getting carried away with one month’s sales result.

“But it shows there is life out there in consumer land.

“The big winners have been specialised food stores, cafes and restaurants with consumers seemingly giving up on renovating and decking out their homes and focussing on food instead.

“The lift in sales at butchers, bakers, fruit & veg shops and seafood stores over the March quarter was the best in five years.

“And the increase in cafes and restaurant trade was the best in 18 months.

“Cheaper prices had a lot to do with it – even prices at cafes and restaurants fell 1% in the March quarter – a record fall.”

James says the biggest casualty was in household goods like carpets, furniture, hardware and garden supplies, where spending slumped 3.3% in inflation-adjusted terms over the March quarter.

He says the clear conclusion from the raft of economic data out is that the Reserve Bank can cut rates again.

“However, the RBA is likely to take a few more months to weigh up all the influences, with CommSec pencilling in a rate cut in August after the next inflation data.

“And that brings us to the April employment figures on Thursday.

“Clearly the data has been volatile, with jobs up 44,000 in March after falling by 15,400 in February.

“We tip a modest 5,000 lift in jobs in line with sedate job ads data.

“The unemployment rate is likely to hold near 5.2% or rise slightly.”

Shane Oliver from AMP Capital says the focus will be on the 2012-13 Budget with his attention of the danger that budget cutbacks could discourage longer term savings and investment.

Oliver suggests a return to surplus will add to the scope for the RBA to cut interest rates further, and any surplus will add to confidence in the minds of foreign investors regarding Australia's underlying economic strength at a time when most other countries are still struggling to bring deficits under control.

"It will start to put the public finances back into the position where they can provide another bout of stimulus should the global economy take another turn for the worst," he said.