Retail trade beat expectations in August Australian retail spending rose 0.4 per cent in August, slightly above the market forecasts. IT'S still early days but better-than-expected retail spending figures are stoking hopes that low interest rates may finally be working their magic on the sector. Australian retail trade rose 0.4 per cent, seasonally adjusted, in August - the same month the Reserve Bank cut the cash rate to the record low of 2.5 per cent - the Australian Bureau of Statistics said on Tuesday. The result beat economists' expectations of a 0.3 per cent rise and followed a 0.1 per cent rise in July and a flat result in June. National Australia Bank senior economist David de Garis said that although it was a modest rise, the better-than-expected result provided a bit of relief after what had been a succession of flat retail spending results. A rise of 0.4 per cent is nothing to write home about at this stage but at least it's a little bit better than what we've seen for the last couple of quarters. It's the best rise we've seen since January and February this year," he said. Mr de Garis said the result could be a sign that low interest rates were trickling through the economy, following other good economic news on Tuesday including strong home sales figures and data showing activity in Australia's manufacturing sector had risen for the first time since June 2011. "Retailing has been particularly choppy for the past year or so, so perhaps low interest rates may be beginning to work," he said. The trend is pretty mild at this point, let's not get too excited. But there might be a little bit of a positive pattern to that. RBC fixed income and currency strategist Michael Turner said several factors could have driven a temporary boost for retail spending in August, but a forecast of sub-trend consumption growth remained for this year and next. "We are sceptical that the August outturn marks a stronger period for the consumer given some factors which supported spending in the month, such as the rate cut, will fade, leaving familiar headwinds of a weak labour market and slow income growth to dampen spending," Mr Turner said. The labour market is weak, wage growth is slow and whilst confidence has risen for now, a rising unemployment rate amidst still high levels of indebtedness is likely to prevent the saving rate from falling. JP Morgan economist Ben Jarman said August's seasonally-adjusted retail result could be skewed by end of financial year clearance sales, because the result appeared to be driven by department store sales. "August was a rate cut month, so it is tempting to lump this step-up in retail spending together with the recent strength in the housing market data as further signs that the low cash rate is getting traction," Mr Jarman said. However, much of the gain in discretionary sales was due to the jump in the department store category, which surged 6.4 per cent having tanked 7.9 per cent in July.