The Economy: Stronger Than Retail Suggests Ahead Of Rate Decision —
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The Economy: Stronger Than Retail Suggests Ahead Of Rate Decision

The Reserve Bank makes its first decision for 2012 on the level of interest rates today.It could move rates any way, but there’s a sneaking suspicion abroad the central bank might sit on its hands after recent data from Australia, the US, China and especially Europe hasn’t been as gloomy as many analysts had forecasts.

But equally, a cut wouldn’t surprise.

But the tone of recent data has been very much upbeat, as the recent surge on major stockmarkets suggest, as well as the rise in the price of copper and the value of the Australian dollar.

Car sales remain solid, another sign consumers seem to be more positive than the headlines suggest.

So ignore yesterday’s retail sales headline figure of a fall of 0.1% in December and instead concentrate on the nitty gritty of the release from the Australian Bureau of Statistics and a couple of other reports.

The headline fall of 0.1% in the seasonally adjusted value of retail sales for December got the attention it didn’t deserve.

Market economists had been forecasting a rise of 0.3% for the month.

The ABS said retail trade fell in the month to a seasonally adjusted $20.885 billion, compared to a downwardly revised $20.909 billion in November.

The ABS said the 0.1% fall in December in retail sales (seasonally adjusted) followed a rise of 0.1% in November and a flat result for October, meaning retail sales were flat during the quarter. But in volume terms sales were up for the final three months of the year.

The ABS said that over the December quarter, retail sales rose by 0.4% to $60.773 billion in seasonally adjusted volume terms, which is slightly weaker than the 0.5% rise for the September quarter.

The ABS said the overall trend result (which attempts to smooth out month to month variations) was a rise of 0.1%.

Now while that’s hardly anything to boast about, it’s not the end of the world, as some writers and analysts would have you believe.

According to the likes of Coles, Woolies, Harvey Norman and David Jones, price deflation was a problem in the closing months of 2011, especially in areas such as fruit and vegetables (down 13% in the CPI data in the quarter), consumer electronics and clothing and footwear (imports costing less because of the impact of the high dollar value and price cutting in things like flat screen TVs by the likes of Sony, Samsung etc).

That means consumers have been buying more than the headline figures suggest.

It was a big headache for food retailers in the December quarter and in December, according to comments from Woolies and Coles last week with their latest sales figures.

The driver of the December fall was an 0.7% drop in the seasonally adjusted sales in food retailing.

But that contained the conflict: The ABS reported: “By industry subgroup, the trend estimate rose for Supermarkets and grocery stores (0.2%) and Liquor retailing (0.7%) and fell for Other specialised food retailing (-2.3%).

“The seasonally adjusted estimate fell for Other specialised food retailing (-8.3%) and Supermarkets and grocery stores (-0.1%) and rose for Liquor retailing (1.1%).”

So it looks like we drank a bit more, ate roughly the same, or ate out less, and enjoyed a quiet Christmas making online purchases (judging from anecdotal report).

Adding to the downward pressure was a 1.8% fall for the previously very solid cafes, restaurants and takeaway food services.

That means the value of retail sales for the month was undermined by weak sales in the food sector, including takeaways and restaurants.

But offsetting this weakness in food were better performances from a couple of problem sectors.

Department stores and footwear and clothing retailers did much better in December, after having some miserable months.

The ABS said, “These falls were offset by rises in Clothing, footwear and personal accessory retailing (3.5%), Department stores (1.1%) and Household goods retailing (0.2%). Turnover was relatively unchanged in Other retailing (0.0%)”.

That might have been driven by discounting, but there was also plenty of discounting much earlier in the year in these sectors to no avail as sales fell.

The ABS said the state to make the largest contribution to the fall was Queensland (-1.4%), followed by Western Australia (-0.7%), New South Wales (-0.2%), South Australia (-0.7%), the Northern Territory (-2.6%) and Tasmania (-0.1%). Turnover rose in Victoria (1.5%) and the Australian Capital Territory (1.8%).

“In trend terms, turnover rose 0.2% in December 2011. This follows a rise of 0.2% in November 2011 and a rise of 0.2% in October 2011.”In volume terms, turnover rose 0.4% in the December quarter 2011, seasonally adjusted, following a rise of 0.5% in the September quarter 2011.

“In trend terms, Australian turnover rose 3.0% in December 2011 compared with December 2010,” the ABS said.

That also isn’t anything to write home about, but it’s not that bad given the damage dome at the start of the year from the floods in Queensland and Victoria and the damage done by Cyclone Yasi.

All three events influenced food prices in particular throughout the year, especially as the negative impacts faded by the December quarter.

And finally the ABS data doesn’t include car and petrol sales.

Car sales were solid in December, and again in January. In fact the industry data on car sales released last Friday shows that January was the best start to the year for five years.

In fact there was a strong skew towards business sales in January. Passenger sales fell 4.3%, but offsetting that was a 30% surge in Sports Utility Vehicles on a year ago and heavy commercial vehicles saw a near 30% gain in the month, the best for almost two years.

Both confirm that confidence levels remain high among private and business car buyers.

And the ABS data doesn’t measure quite a bit of the service sector (40% by some estimates) and doesn’t pick up many online sales, especially from offshore.

And while the private inflation survey from TD Securities and the Melbourne Institute showed cost pressures remain moderate (a monthly rate of 0.2% and an annual rate of around 2.2%, on the core basis favoured by the RBA), the January job ads survey from the ANZ bank contained a major surprise.

Job advertisements have posted their largest monthly rise in almost two years in January (since February 2010).

The ANZ said total job advertisements on the internet and in major metropolitan newspapers rose by 6.0% last month.

The rise came after several weak months of no growth or falls in job advertising on the internet and modest rises in newspaper ads.

But that was reversed in January with internet job advertisements were up 6.4% and 1.4% higher than a year ago.

Job ads in newspapers fell 2.6% in January and were down 11.5% on a year ago.

That left total job ads in the year to January up a tiny 0.7%.

ANZ Head of Australian Economics and Property Research Ivan Colhoun said the rise was driven by acceleration in the mining regions of Queensland and the Northern Territory.

“The awaited significant acceleration in mining investment is now beginning to boost labour demand in these states,” Mr Colhoun said in yesterday’s release.

“We remain mindful of the usual problem of significant volatility in the monthly data over the December-January holiday period.

“In spite of this caution, the pick-up in advertising in the resource states is of sufficient magnitude to outweigh any of these seasonal concerns.”

Mr Colhoun said ANZ was forecasting the unemployment rate would drift up from 5.2% in December to 5.5%, or possibly higher, during 2012 as recent weak employment growth had not kept pace with accelerating population and labour force growth.

“This month’s job ads data, if sustained in coming months, suggests any rise in unemployment should remain very modest.”

ANZ says it does not expect an interest rate cut at the RBA’s February board meeting on Tuesday but does expect one at the March meeting.

“Inflation is well-contained and the economy can afford to grow a little faster,” Mr Colhoun said.

“In particular, we will be less likely to see further interest rate cuts.”

Clearly the domestic economy isn’t booming, nor is it a basket case in need of another set of interest rate cuts.

Activity is mixed, but it is also more soundly based than many commentaries suggest.

This Information is provided to you by the Australasian Investment Review (AIR).Subscriptions are free.AIR reports about financial markets and investment products in the widest sense possible. The AIR website and all its contents is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before making any investment decision.


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