Crikey

A 1% drop in retail sales and a 2.3% fall in housing finance for July, have provided a reality check on the question of whether stimulus spending should be hauled back.

Coming on top of the near six-year high for business confidence, and solid rise in business conditions, plus the rise in newspaper and online job ads for the first time last month in over a year, the recession, or rather the slowdown, is clearly over. Hence the campaign from the Opposition, The Australian newspaper and some economists, including the National Australia Bank which raised the issue of trimming spending in its monthly business survey on Tuesday.

Opposition leader Malcolm Turnbull has gone on a “cut back stimulus” sortie in the past couple of days, urging the Government to act on his demands. The Opposition and the Greens combined to force an inquiry next week into the stimulus spending, but the fall in retail sales and the easing in housing finance will make the Government’s task of defending its spending much easier.

All Turnbull needs now is a rise in unemployment tomorrow and the Opposition have snatched another defeat from the jaws of victory.

News of the slide in retail sales was released by the Australian Bureau of Statistics at 11.30am, half an hour after the release of the September consumer confidence survey which showed a two year hit hit in the latest data from Westpac and the Melbourne Institute.

But the retail sales figures contained a timely reminder that there could be a slowdown this quarter, perhaps into the December quarter.

Reserve Bank Governor Glenn Stevens warned of such a possibility in his post rate meeting statement last week when he said: “some spending has probably been brought forward by the various policy initiatives; in those areas demand may soften in the near term.”

The news that there appears to be weaker than expected demand in retailing and for housing finance will take some of the pressures off the central bank to act sooner, rather than later to lift interest rates.

The ABS said:

The seasonally adjusted estimate of Australian turnover decreased 1.0% in July 2009. This follows a decrease of 0.8% in June 2009 and an increase of 1.2% in May 2009.

In seasonally adjusted terms, Food retailing (-1.9%), Household goods retailing (-3.6%) and Clothing, footwear and personal accessory retailing (-0.6%) decreased in July 2009 while Department stores (+2.5%), Other retailing (+0.8%) and Cafes, restaurants and takeaway food services (+1.0%) increased.

In seasonally adjusted terms, all states, except the Northern Territory, decreased in July 2009. States with the largest decreases were Queensland and South Australia (both -1.4%) and New South Wales (-1.2%).

On housing finance it said:

In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions decreased 2.3%. Decreases were recorded in both investment housing commitments, down 4.0% and owner occupied housing commitments, down 1.7%.

The ABS said there was an increase in commitments to build new homes (up 2.6%) and to buy an existing new home (up 0.6%) but the proportion of first home buyers fell from 27.1% to 25.7%, while the share of fixed rate loans fell to 7.2% from 8% in June.

Both sets of figures for July came as consumer confidence rose in that month, then rise again in August, and rose again in the latest Westpac-Melbourne Institute report.

Confidence is now at a two year high, having risen for the past four months in a row. But it is still well under the near six year high for business confidence that the NAB reported on Tuesday.

But even the NAB seems to doubt that reading. Buried in its analysis of the survey was this statement:

While these outcomes are very encouraging, to some extent we suspect that current confidence levels may be starting to get to unrealistic levels – just as they fell to overly pessimistic levels earlier in the year. Certainly the gap between confidence and actual business outcomes (and indeed business intentions for capital expenditure) points in that direction.

So the NAB seems to be saying that just as pessimism overshot on the downside earlier in 2009, optimism is now repeating that overshooting on the upside, meaning there’s a fall coming in the next few months.