Retail sales have joined building approvals, house prices, new car sales and business lending in revealing a gathering strength in the domestic economy. It’s thanks in part to the rate cuts since last November, but also to underlying strength that was always there but ignored by the retailing sector and some of the media mouthpieces.

The Australian Bureau of Statistics this morning reported retail sales rose a seasonally adjusted 0.5% in May after a rise of 0.1% in April, revised up from the initially reported 0.2% fall. The 1.1% rise in March was also revised down to 0.9% in today’s report, back to where it was originally reported. According to the ABS, the May result in trend terms rose “0.4% in May 2012 recording its strongest rise in dollar terms since June 2010. This follows a rise of 0.4% in April 2012 and a rise of 0.4% in March 2012.”

Remember that the carbon tax household assistance package started in mid-May, and runs through to the middle of this month. That should help boost turnover for June and July too.

But forget talk of more rate cuts and (yes, OK, we’re going into “rate rise looms” territory) start wondering about a rise later this year if we continue to see solid news like the sort seen in the past few days. A rate rise wouldn’t make Wayne Swan too happy, especially given the banks will try to extract more than the RBA increase, but these benign conditions do mean his budget surplus is now looking a lot more credible than it did back in May.

The ABS says the majority of retail sectors covered in the release “recorded a rise in May”, led by a 1.4% jump in cafes, restaurants and takeaway food services and a 0.8% improvement for household goods retailing. “Other retailing (0.7%), department stores and clothing, footwear and personal accessory retailing (0.5%) also rose. Food retailing (-0.1%) was the only industry to fall in May, in seasonally adjusted terms,” the ABS said.

“Over the longer term food retailing is still the main contributor to growth (up 0.4% in trend terms) along with cafes, restaurants and takeaway food services (up 1.0% in trend terms).”

NSW saw its third monthly rise in a row with a jump of 0.7%. This is good news — the biggest state has been a black hole for retail for a long time, but the O’Farrell government seems to have sparked some life back into the place. Western Australia (1.1%) was also up and remains the strongest performing state over the longer term (up 0.7% in trend terms). Victoria (0.5%), Queensland (0.5%) and the Northern Territory (1.6%) also recorded rises in May, in seasonally adjusted terms. There were falls in South Australia (-0.6%), Tasmania (-1.0%) and the Australian Capital Territory (-0.1%).

Figures out later today will confirm a record month for car sales in June of more than 112,000 units. That was boosted by the usual end-of-financial-year sales surge, but it is expected to just top the previous high of more than 108,000 in June 2009, when sales were helped by the ending of an incentive in the federal government’s stimulus package.

The post-RBA board meeting statement from governor Glenn Stevens observed yesterday:

“In Australia, recent data suggest that the economy continued to grow in the first part of 2012, at a pace somewhat stronger than had been earlier indicated. Labour market conditions also firmed a little, notwithstanding job shedding in some industries; the rate of unemployment remains low.”

Note the phrase, “at a pace somewhat stronger than had been earlier indicated”. That’s RBA code for the economy is stronger than we and others thought at the time of the rate cut last month, so don’t expect any more, unless Europe slumps again, or perhaps the US hits the fiscal cliff early next year and slumps sharply into recession as spending is cut and taxes rise sharply. As Crikey reported online this morning, the IMF flagged that as a real risk overnight. And at the moment US politicians are too busy fighting over the steering wheel to do anything to avoid it.