Friday, August 03, 2012

Guess what? Stimulus payments stimulate, so we're spending big

In just one month...

Department stores spending up 3.4%

Cosmetics and pharmaceuticals up 2.5% *

Shoe store spending up 2%

Clothing outlet spending up 1.7% *

Takeaway food spending up 1.9% *

* Record high

ABS 8501.0, Seasonally adjusted

Australians stormed back into shops in June as back-to-back interest rate cuts, midwinter sales and $2.85 billion of government handouts pushed spending on shoes, clothes, cosmetics and takeaway food toward record highs.

Department store sales, languishing ever since the last round of government bonus payments delivered during the global financial crisis, jumped 1.2 per cent in May and a further 3.4 per cent in June to record the biggest two-month gain since $19 billion of stimulus payments were delivered to Australians between December 2008 and April 2009.

The $2.85 billion of handouts delivered in May and June were intended to provide early compensation for the carbon tax and to support parents with school children. Retail figures released yesterday show instead they pushed up spending on takeaway food 1.4 then 1.9 per cent to a new record high and spending on clothes, shoes and cosmetics and pharmaceuticals 1.7, 2.0 and 2.5 per cent.

Over the year to June total sales were up 5.4 per cent, the best result since the global financial crisis and its associated stimulus payments in 2009.

‘‘Across the board, Australians have clearly felt like they were a little more inclined to spend their pennies in June than they have for quite a while,’’ said Australian National Retailers Association chief Margy Osmond. “This is a great set of figures, but it’s not the ‘recovery’ yet.”

The government handouts were paid into bank accounts in May and June ahead of the new financial year in order to create a budget surplus in 2012-13. But Westpac economist Matthew Hassan said he expected the retail spending boom to continue beyond June because it was also fuelled by interest rate cuts worth around $1.2 billion and tax cuts that only took effect in July....

“Going forward there will be some delayed spending of June's cash and further rate effects and tax cuts to come, but the sales growth will likely moderate as the direct impact of stimulus rolls off,” he said.

CommSec economist Craig James said there was a chance the “perfect storm” of stimulus measures could change consumer psychology.

“Is it all a mirage? We’ll find out in the next few months,” he said. “It’s reading like a well scripted play. We’ve had sizeable rate cuts, federal government handouts, tax changes and lower petrol prices, as well as lower retail prices.”

“Hopefully, consumers are now seeing the glass as half-full, not half-empty. The risk is that spending has merely been brought forward. But if deflation continues, Aussies will keep spending.”

The Bureau of Statistics figures suggest that over the past year the high dollar and discounting have pushed down retail prices have 0.2 per cent. The prices charged by food retailers are down 0.9 per cent, the prices charged in department stores down 0.8 per cent and those charged for household goods down 1.8 per cent. Clothing and footwear prices have climbed 1.1 per cent over the past year although in the past two quarters they have turned back down.

Treasurer Wayne Swan said the volume of goods sold was now growing at its fastest pace in three years.

“There will always be challenges,” he said. “But we have the best combination of solid growth, low unemployment, a record pipeline of investment, healthy consumption, contained inflation and lower interest rates.”

The Reserve Bank board is expected to keep interest rates steady at its meeting next Tuesday after delivering four rate cuts in that have sliced almost one percentage point off standard variable mortgage rates.

In today's Canberra Times, Sydney Morning Herald and Age

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