Economists predict stronger sales could slow interest rate cuts

Retail spending increased by 0.4 percent in November as shoppers spent more money than predicted taking advantage of lower petrol prices and two successive big interest rate cuts.

Katie Dean ANZ's senior economist predicted a reduction of half a percentage point next month and more cuts after that, but "at a slower pace than during the last few months'' when the Reserve Bank slashed 3 points in four months.

A New Housing Industry Association survey showed a 1.1 per cent reduction in new home sales in November despite the increased first-home owners grant.

The Mortgage and Finance Association of Australia - Bankwest Home Finance Index found that about half of all potential first-home buyers thought it was a good time to enter the property market, although 47 per cent of those who had planned to buy this year had put the purchase on hold because of the economic situation.

Richard Evans Australian Retailers Association executive director said that the shopping results came at the peak of the economic downturn, and employers would realize consumer sentiment had risen since November and not overreact.

However if employers do overreact and start cutting jobs now, then the recovery will be much slower.

He further stated that more cash would be flowing through the sector due to an increasing Australian dollar, further rate cuts, fairly low petrol prices and another Government hand-out by mid-year, with the rest of the economy following three to six months later.