tip off

If the RBA cuts, it will be because it is looking offshore

New data on retail sales and import/export trade are unlikely to affect the Reserve Bank’s thinking ahead of tomorrow’s crucial interest rates meeting.

Retail sales and trade figures for September released by the Australian Bureau of Statistics won’t have any impact on the Reserve Bank’s thinking on interest rates tomorrow, because they don’t contain anything startlingly different to what we have seen for most of this year.

Retail sales grew by a seasonally adjusted 0.5% in September, a little faster than forecast, and the trade deficit was $1.4 billion as well, underlining what we already know, that retailing is patchy and the trade accounts are being hit by weaker commodity prices.

The latest figures go with the small rise in building approvals (thanks to the usually volatile “other private dwellings” category rising in September). New home sales and prices fell. Private credit edged up a little faster in September as home loan lending picked up. That’s the impact of the four rates cuts (the fifth was at the RBA board meeting in October).

Car sales are solid, especially of imports, while local production is falling, triggering the start of what could be another round of layoffs. Job losses seem to be on the rise, meaning Thursday’s jobs data for October will again have more focus on it than the retail sales and trade figures issued late this morning.

The ABS said retail sales rose 0.5% after a 0.3% rise in August (revised up from the original 0.2% rise). In trend terms, the ABS said retail sales rose 0.2% in September 2012. This follows a rise of 0.3% in August 2012 (revised up from 0.2%) and a rise of 0.3% in July 2012 (unrevised). In trend terms retail sales were up 3.7% on a year ago and 0.8% in the September quarter (on volume terms). In seasonally adjusted volume terms, the ABS said turnover (in volume terms) fell 0.1% in the quarter after a rise of 1.2% in the June quarter.

The trade deficit fell 22% seasonally adjusted to $1.456 billion, but rose 9% in trend terms to $1.555 billion. Imports and exports fell 1% in the month. That information won’t influence RBA board thinking tomorrow because the weakness in our trade performance has been there for much of 2012.

All this is what a former US Defense Secretary would call “known knowns”. His other great contribution, known unknowns, are starting to occupy markets. They include the results of the US presidential and congressional elections and the impact they have on the resolution of the looming “fiscal cliff” in America: that’s the combined impact of the ending of big tax cuts and the start of immediate and sweeping spending cuts which could plunge the US economy into an immediate slump in the first quarter of 2013. Then there’s the leadership change in China expected to be revealed late this week and at the weekend and whether it can end the growing tensions seen in Chinese politics, and allow that government to resume focusing on the slowing economy. And the eurozone, long the number one offshore concern, especially with the threat to the euro and the pressures those concerns have put under the Aussie dollar and forced it higher.

If we are to get a rate cut tomorrow or on the first Tuesday in December (or at both meetings, as we did in 2011), it will be for a combination of these factors. A year ago, the RBA cut to give the economy some room in the event of the euro crisis worsening. It didn’t, but that escape finally didn’t occur until June of this year and then in September. A few months on, Greece’s problems are drifting back into focus, while there has been a rise in tensions between the UK and the rest of the EU that could start a long brawl ending in political instability in Britain, or the country steeping well away from the EU, while trying to keep some links.

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    The Pav
    Posted Monday, 5 November 2012 at 1:47 pm | Permalink

    Dear Glen

    Re:-“because they don’t contain anything startlingly different to what we have seen for most of this year”

    Not possible for anything to be “different to” they can only be “different from”.

    Regards

    Pedantic Pav (hopefully not shooting self in foot with typo)

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