An extraordinary surge of cash washing through checkouts has helped vindicate the government's series of cash splashes, pushing retail spending to yet another all-time high in May, the fifth since the stimulus payments began.
In the midst of the global financial crisis and amidst climbing unemployment Australian consumers spent a record $19.5 billion in May, a full $1.1 billion per month more than before the payments in November.
Retail spending has climbed 6 per cent in the half-year since the payments began, after climbing only 1 per cent in half-year before.
The turnaround has been the starkest in NSW...
In the half year before the payments NSW retail spending actually contracted 1.3 per cent. In the half year since it has soared 7 per cent - the fastest growth rate in the nation.
Clothing and soft goods sales have led the way, surging 14 per cent in the half-year since payments after sliding 1.6 per cent in the half-year before. Department store sales have climbed 12 per cent after sliding 2.6 per cent.
"Consumers are fired up to spend despite the storm clouds of imminent recession," said Commonwealth Bank economist John Peters. "We've had three stimulus packages, in December, March and April, and from this month the tax cuts promised in the Budget. Every sector of retailing is performing better than before the stimulus measures, a fact that must engender some further fear and lothing in their stubborn sceptics."
"Obviously retail spending has been buoyed by the handouts, said ICAP Securities economist Adam Carr. "But there is more to it that that. Consumer confidence has bounced sharply, incomes growth is solid and when you add to that historically low interest rates and a labour market that is so far holding up well – I don’t think we’ll see consumer spending wane."
Treasurer Wayne Swan said the 6 per cent surge showed the stimulus packages were working.
"If you compare our retail sales to say those in the United States, during that period they went backwards 2.2 per cent. So it's very encouraging."
Coalition Treasury spokesman Joe Hockey welcomed the news saying it demonstrarted the underlying reliliance of the Australian economy, but he said it was not yet clear that the stimulus payments had been value for money.
"The majority of them have still been saved," he said. "Over time we will get the full picture."
Retail spending accounts for 25 per cent of GDP, and the broadest measure of consumer spending accounts for 60 per cent, making it possible that the spending boom will propel Australia into another quarter of positive growth in the three months to June, delaying further the prospect of a so-called "technical recession".
David Jones Tuesday upgraded upgraded its profit outlook citing expected strong sales and the Macquarie Bank yesterday predicted a further quarter of positive growth.
"The litmus test will come later this year when the fiscal candy runs out, said RBC Capital Markets economist Su-Lin Ong. "Rising unemployment favours a more subdued consumer in the months to come."
Splashing the cash
The six months to December
Department store spending - down 2.6%
Clothing and soft goods - down 1.6 %
Household good spending - down 0.7%
The six months since December
Department store spending - up 12%
Clothing and soft goods - up 14%
Household good spending - up 4.7%
Published in today's SMH and Age