Something’s not right here. The Reserve Bank is lining up a cut in official interest rates this afternoon and more and more statistics are showing that the sharp domestic slowdown, is, well, not as sharp as thought.

Instead of the doom and gloom portrayed in the National Australia Bank’s business surveys and in the various consumer sentiment surveys, there’s a bit of evidence around that economic activity hasn’t been as fractured by high interest rates as we thought, and that while there has been an impact on stockmarket activity from the credit crunch and on some sectors from higher oil prices, a recession is nowhere in sight.

We will get a lot more clarified by tomorrow’s national accounts, but those folk seeing a sharp dive in activity — the debt burden bringing the house down, not to mention the “we’ll be rooned” jottings of some commentators — will have been disappointed by yesterday’s figures.

Subject to the release today of government finances for the June quarter, the figures paint an economy which has been slowed from annual growth of more than 5% at the end of 2007 to just under 3% now.

There could very well be a negative figure for one measure of growth, GDP-E, or Gross Expenditure. But the income side (GDP-I) will be strong, probably much stronger as the company profit figures yesterday showed, with wages and salaries also stronger as well. Overall GDP could actually be a bit lower simply because of the lower spending, but the production measure will also be stronger.

If there is a negative figure for expenditure you can bet excitable Brendan Nelson will grasp it, desperate as he is.

But a negative figure will merely be confusing, and you can bet that with revisions in the March quarter figures (0.6% for the quarter, 3.6% annual), the overall rise in GDP for the year could be a bit better than previously thought. Certainly there won’t be any sign of recession.

Brendan Nelson’s command to the RBA to cut rates by 0.50% will have been ignored at Martin Place. They don’t take much notice of anyone in the outside world these days as they read the economic tea leaves, scatter the bones and try to sort out what is now a more complex economic outlook than seemed a week ago. Nelson said he wouldn’t do it in Government; the RBA understands that and isn’t taking any notice of him.

Through its rate rises, the RBA has slowed the domestic economy, but possibly not by as much as previously thought, or by what is showing up in those sentiment surveys or the retail sales or building stats. The next rate cut might be a while in coming: possibly by the end of the year.

Corporate profits outside mining (as well as in mining) and sales in non resource sectors were stronger than expected. Wages and salary growth might have been up 7.3% in the year to June, but they were only up 2.3% in the June quarter and no one looking at the figures this morning talked about “wages explosion shock/looms”. Goldman Sachs JBWere remarked this morning:

We were surprised by the healthy volume-led profits reported outside the mining sector.

In particular, higher sales volumes in the property & business services (+2.1%qoq), construction (+8.7%), wholesale trade (+1.1%), retail trade (+0.8%), and transport sectors (+1.2%) are at odds with the very sluggish conditions reported across many business surveys.

June quarter GDP forecast: Our Q2 GDP forecast is unchanged and we continue to look for a 0.2%qoq rise in aggregate activity in the June quarter – the weakest quarterly outcome in 5½ years.

As we expected, surging mining profits (+40.5%qoq) underpinned the overall rise in the quarter, as higher contract prices for bulk commodities were incorporated into the official data. However, profit growth in other industries was also (surprisingly) strong in the quarter, particularly construction (+20.4%qoq), manufacturing (+14.6%qoq), retail trade (+7.7%qoq) and transport & storage (+2.4%qoq).

The RBA releases its interest rate decision today at 2.30pm. Visit shortly after that time for their words and our take on them.