Australia's retail sector reveals a surprising twist.

Australia's housing market has slowed, and retail spending is not growing at the same fast pace it was at the beginning of 2004, as indicated in the chart above. The Australian economy has responded to anti-inflation action taken by the Reserve Bank of Australia (RBA).

Growth in the rate of inflation in 2004 was 2.8 percent, the same as 2003, according to the International Monetary Fund (IMF). This is uncomfortably close to the high end of the RBA's target range for an increase in the rate of inflation (3.0 percent). So the RBA reined in the economy and the result appears to be just enough of a dampening of economic activity to maintain overall economic health without much of a decline in GDP.

The IMF predicts that Australia's GDP will end 2005 having grown 3.4 percent, compared with 3.6 percent in 2004, and 3 percent in 2003.

Over the past decade, the RBA has a good record on inflation. The average annual increase in the rate of inflation from 1996 through 2005 is 2.53 percent, including the IMF's forecast of 2.5 percent for 2005. The biggest increase in the rate of inflation was 4.5 percent in 2000, and the smallest was 0.3 percent in 1997.

The Australian Associated Press (AAP) reported in late July that the 12 local economists it surveyed were unanimous in their belief that the RBA would not raise interest rates at its board meeting during the first week of August 2005. The last time the RBA raised interest rates was in March 2005.

There was also a consensus that interest rates would remain steady for the rest of 2005.

Statistics developed by the Australian Bureau of Statistics showed not only a slowing of the growth in consumer spending at retail but also a shift in spending patterns from January 2005 through May 2005.

One of the most telling patterns revealed was in household goods. For the 17 months beginning in January 2004 through May 2005 the average monthly seasonally adjusted change in revenue for this broad category was 0.6 percent. And from January 2005 through May 2005 that average remained the same at 0.6 percent.

Sharp increases in housing prices were known to be one of the RBA's major concerns, and housing, did, slow. Making a connection between the slowing of the housing market and the flat rate of growth in household goods is hard to resist.

Three other broad retail areas offered striking changes. Department stores showed a 17 month average growth rate of 0.4 percent. But from January 2005 through May 2005 the average rate of growth was 0.9 percent.

Recreational goods exhibited an identical pattern: The 17 month average growth was 0.4 percent, and the 2005 monthly average growth was 0.9 percent.

Also telling: The hospitality and service industries showed an average 17 month growth of 0.2 percent. And the same five month 2005 average growth was 7 percent.

These three broad areas are where consumers might be thought of as showing some enthusiasm. Compare them with an "everyday" category such as food.

Food, like household goods, maintained its 17 month average rate of growth The rate was 0.3 percent.

Conclusion: In spite of "slowdown" reports, Australian consumer markets remain vibrant.

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