Retail sales were weaker than expected in March, falling by 0.4% m-o-m (market consensus forecast +0.1%), although coming after very strong readings in January and February with each month up 1.3% m-o-m. Even with the weaker result in March the volume of retail sales rose particularly strongly in Q1, up by 2.2% q-o-q (consensus +1.7%), the strongest quarterly rise since Q1 2007. The strong quarterly rise in retail sales implies a big contribution to Q1 GDP growth from household consumption expenditure, possibly as much as 1.3 percentage points to q-o-q GDP growth. This strong contribution to growth will help offset a likely pullback in resource sector investment spending.

The RBA holds its May Board meeting tomorrow afternoon. Laminar expects no change to the 3.00% cash rate (a record low cash rate and consistent with bank lending interest rates around 150 bp below their long term average). While inflation is comfortably low, the most interest rate sensitive part of the economy, housing purchase, is already showing considerable strength. At the first weekend home auctions in May, the biggest housing market, Sydney, showed a clearance rate of 78.1%, the highest rate since early 2010 and just below the rates recorded in the 2002-03 housing boom.

Ahead of the RBA meeting Q1 house prices will be released (consensus forecast +1.8% q-o-q) a sign that house prices have started to rise strongly if the forecast eventuates. March international trade data will also be released and the market expects a zero or balanced position (Laminar expects an even better $A500 million surplus) from $A178 million deficit in February. Exports likely firmed in March, while imports (especially of capital goods) fell.

The April labour force report is out on Thursday. We expect employment rose by 15,000 (consensus +11,000) after the 36,100 fall in March and 74,000 rise in February. The market expects the unemployment rate to hold steady at 5.6% while we expect a one notch reduction to 5.5%. Given the volatility of the employment numbers in February and March, the risk of a surprise outcome in either direction is high.