As the Australian resource boom wanes, the country’s policymakers have been hoping non-mining sectors would start to assert themselves. With interest rates at historic lows, the housing sector has been one area of obvious strength, though there are concerns that a bubble could be developing.

Surprisingly, the latest retail sales data suggest that this sector could be another source of strength for the economy, as well as yet another hopeful sign that the country’s sluggish economy is finally regaining momentum.

This week, the Australian Bureau of Statistics (ABS) reported that January retail sales rose a seasonally adjusted 1.2 percent month over month, to AUD22.9 billion, trouncing the consensus forecast of 0.4 percent. And December’s number was revised higher by two-tenths of a percentage point, to 0.7 percent. On a year-over-year basis, retail sales were up 6.2 percent.

This was the ninth straight month in which retail sales have risen and the third consecutive month in which the percentage increase has been equal to or greater than the preceding month. Over the past three years, retail sales growth has averaged 0.3 percent monthly growth, while over the trailing six months it’s averaged 0.8 percent monthly growth.

So clearly this upward trend, which we first wrote about in early January, has been sustained. The question is whether consumers will continue spending at this pace. While Australia’s unemployment rate, which rose to 6.0 percent in January, is enviable from our perspective, it’s actually at a 10-year high. And the Reserve Bank of Australia (RBA) expects unemployment to continue rising in the near term.

As evidenced by a recent sentiment survey, consumers are worried about their job security, which could constrain spending in the months ahead. The Westpac-Melbourne Institute Index of Consumer Sentiment declined by 0.7 percent in March, to 99.5. That’s its lowest reading since last May, and well off the euphoria (or, more likely, relief) that coincided with the country’s federal elections in September, when the index had a reading of 110.63.

The sub-index that gauges consumers’ outlook for the economy over the next 12 months continued to decline, falling 4 percent month over month. Westpac notes that this measure is now down 21.8 percent year over year, at its lowest level since December 2011, at the height of the European sovereign-debt crisis.

While sentiment is rosier regarding improvement in family finances over the past year, again the outlook shows concern about the year ahead, with this sub-index down 7.1 percent year over year. However, Westpac says this measure, as well as the one concerning whether the time is right to buy a major household item, have both been relatively resilient in recent months compared to the overall sentiment index, even if both have eroded during that time.

This suggests that the gloomy near-term view of the economy has yet to translate into greater caution regarding spending.

To be sure, sentiment tends to be a lagging indicator, as respondents’ views are often formed by extrapolating the recent past into the future. However, this survey was taken in early March, while the retail sales data we’re analyzing are from January, so the positive trend in retail sales could have at least a short-term hiccup.

On the other hand, the strength in retail sales has been broad-based, particularly with regard to discretionary spending. Spending on restaurants and take-out rose 2 percent sequentially, and sales at department stores were up 2.6 percent. Spending on household goods was also robust, with sales increasing by 1.5 percent.

Still, despite the duration of this trend, analysts remain cautious about the latest data, in part because of seasonality. For instance, JPMorgan analyst Ben Jarman attributed the surprise result to a boost from the timing of payments from the federal government.

But when viewing these data in tandem with the upside surprise from fourth-quarter gross domestic product (GDP) growth, there’s at least a kernel of hope that growth in the year ahead could continue to outpace muted expectations.

Portfolio Update

Ramsay Health Care Ltd (ASX: RHC, OTC: RMSYF), Australia’s largest private hospital operator, reported core net profit after tax (NPAT) of AUD171.6 million for its fiscal-2014 first half (ended Dec. 31), up 15.8 percent year over year. Meanwhile, core earnings per share (EPS) rose 17.5 percent, to AUD0.812.

Overall revenue grew 13.9 percent, to AUD2.4 billion, while revenue from the company’s Australia/Asia segment climbed 10.2 percent, to AUD1.9 billion.

Management upgraded its guidance for the full fiscal-year 2014 (ending June 30), with core NPAT and EPS expected to grow between 16 percent and 18 percent, up from the previous guidance range of 12 percent to 14 percent.

Since its founding in 1964, Ramsay has grown to become a global hospital group, with 151 hospitals and day-surgery facilities, for a total of roughly 14,600 beds. The company has holdings in Australia, the United Kingdom, France and Asia.

During the six-month period, Ramsay added another 33 international facilities to its portfolio and will be focused on integrating these assets into its operations.

In July, the company partnered with the Malaysia-based investment holding company Sime Darby Berhad to expand its foothold in Asia. The joint venture combines Sime Darby’s three hospitals and a nursing college, which are situated in Malaysia, with Ramsay’s three Indonesian-domiciled hospitals. Ramsay will contribute AUD120 million toward the venture over a three-year period, to bring its equity stake up to Sime Darby’s level.

And in December, the company acquired 30 psychiatric facilities in France for EUR151.9 million, roughly equivalent to AUD233.6 million at the deal’s close in mid-December. The facilities, which have more than 2,600 beds, generate annual revenue of around EUR150 million and are expected to be accretive to earnings per share within 12 months.

These acquisitions reduced the company’s cash position to AUD127.7 million at the end of the year, down about AUD152 million from a year ago. The company’s long-term debt currently stands at nearly AUD1.4 billion.

Ramsay has high inside ownership, largely due to company founder and current Chairman Paul Ramsay’s 36.2 percent stake, so management’s interests are firmly aligned with shareholders.

Though the mix of analyst sentiment remains decidedly neutral, at four “buys,” eight “holds” and three “sells,” sentiment has shifted in a more positive direction since the company’s earnings release.

Wilson HTM Investment Group upgraded the stock to “buy,” from “hold,” and also boosted its 12-month target price to AUD50 from AUD39. CIMB raised its rating to “add,” equivalent to a “buy,” from “hold,” while also increasing its 12-month target price to AUD52.52 from AUD39.11. And Commonwealth Bank upped its rating to “neutral,” which is equivalent to a “hold,” from “underweight,” or “sell.” The bank’s 12-month target price is now AUD45.00, up from AUD30.00 previously.

Although Ramsay’s fiscal first-half revenue exceeded analyst expectations by 1.5 percent, earnings per share fell short of consensus by 7.9 percent. Nevertheless, Ramsay’s shares have jumped 10.2 percent in local currency terms since the company reported earnings in late February. And over the last 12 months, the stock is up 60.4 percent, taking the company’s market capitalization to AUD9.9 billion.

The latest price spike has already gotten ahead of analyst projections for price appreciation in the year ahead. The consensus 12-month target price is AUD45.19, which is 8.0 percent lower than the current share price. Assuming the stock maintains its upward momentum, some of the other analysts will likely revise their targets higher in the months to come.

For full-year fiscal 2014 (ending June 30), analysts forecast EPS will jump 27 percent, to AUD1.59, while revenue is expected to climb 16 percent, to AUD4.9 billion. In fiscal 2015, analysts project EPS will rise 15 percent, to AUD1.83, while revenue is expected to increase 10 percent, to AUD5.4 billion.

Ramsay has grown its payout by 18.4 percent annually over the past five years, and its shares currently yield 1.5 percent on a fully franked basis, with a payout ratio of 56.8 percent. Ramsay Health Care is a buy below USD38 in the Conservative Portfolio, though we may revisit this buy target in the forthcoming monthly issue.