Friday, August 01, 2008
Sales figures for June show that spending collapsed 1 per cent nationwide, with the ACT leading the nation down with the biggest dive in the nation – 1.6 per cent.
Over the six months retail spending fell 0.3 per cent – the biggest six-monthly dive since records began some 30 years ago.
Spending in department stores dived 5 per cent, as did spending on clothes and shoes.
The volume of goods sold collapsed 0.3 per cent in the first quarter of the year and 0.6 per cent in the second, meeting the definition of a “retail recession”.
“Just like in the last recession, Australians are ‘cocooning’, that is saving money by going out less”...
...said Commonwealth Securities economist Savanth Sebastian.
“Spending at cafes and restaurants has fallen each quarter for the past year, visits to hotels and clubs have slumped, while spending on takeaway food has fallen over ten per cent over the past year.”
“Probably the only thing holding up retail sales at present is the boom in migration. Australia is experiencing record migration but spending has been going backwards. If it hadn't been for the population boom, the figures would look even worse.”
The figures mean that consumer spending is likely have to make no contribution at all to economic growth when the National Accounts are released in September.
Banker’s Trust economist Chris Caton said the tax cuts which took effect this month might improve things “but there is no reason to expect a rapid turnaround”.
Other figures released by the Reserve Bank yesterday show that credit growth fell to a six year low in June – hitting an annualised 3.7 per cent, well down on the long-run average of 13.5 per cent.
“This is a sign of how high interest rates and concern about the credit market is affecting lending decisions and ultimately economic output, said TD Securities economist Joshua Williamson.
“Households have quickly moved to reduce consumption in response to higher interest rates, petrol prices, essential living costs and an erosion of wealth from falling house and share prices.”
“Spending is unlikely to recover without some interest rate relief. But don't expect this from the banks without help from the Reserve Bank.”
TD Securities has brought forward its earlier forecast that the Reserve Bank would cut interest rates in December.
“Don’t discount a September or October stabilisation cut and even the chance of an August cut should not be ruled out,” said Mr Williamson.
The Reserve Bank’s August board meeting is next Tuesday, August 5.
If the board does decide to cut interest rates at that meeting it will announce its decision that afternoon.
Other banks are more cautious in their forecasts. The ANZ yesterday described the retail news as “awful” but said that it “doesn’t mean rate cuts are around the corner”.
“Inflation is at a 16-year high. The Reserve Bank needs to see a sustained slowdown in spending before it will be convinced that inflation has eased,” said the ANZ’s Katie Dean.
The slump in spending has contributed to an improving the balance of trade. Spending on imports is sliding at the rate of 0.9 per cent a month, while income from exports is soaring. The Bureau of Statistics reported that export volumes soared 3.7 per cent in the three months to June– the strongest gain since the Sydney 2000 Olympics.
Australia recorded its second trade surplus in June after years of deficits.