The odds of a bigger than expected rate cut from the Reserve Bank remain solid after a spate of figures released this morning from the Australian Bureau of Statistics. The figures left growth estimates for the September quarter just as confused as they were before their release. Worryingly, our net international debt jumped 7% in the quarter to an eye catching record $658 billion.

The real driver for improving the chances of a rate of at least 1%, and possibly more, was the sickening fall in manufacturing here, in China, the US and elsewhere in the world last month. The fall in China will send a message that that country’s economic growth surge is slowing rapidly with industrial production seemingly weakening quickly as a housing slump bites.

The Reserve Bank has been looking for solid demand from China to offset domestic sluggishness next year: China’s survey of purchasing managers showed that exports, output, and importantly orders, were all falling.

ABS trend figures for retail trading in October said there had been a rise of 0.25 in the trend of sales for October, September and August. A seasonally adjusted figure buried in the release suggested there had been a recovery in retail sales in October of 0.7%, compared to September’s fall of 1%. That adjustment is based on a smaller sample.

Food retailing was strong, but clothing and homewares, plus cafes remained weak. The market had expected a fall of 0.2%. Harvey Norman this morning reported the first rise in same store retail sales for over 6 weeks in the week to last Sunday, November 30. They were up 0.5%.

The ABS current account figures showed that thanks to the lingering effects of high oil, coal and iron ore prices, our current account deficit again shrank in the September quarter. The Bureau reported that the deficit on goods, services and investment shrank to $9.74 billion from a revised $14 billion in the second quarter, a fall of 31%, seasonally adjusted.

“The surplus on balance of goods and services of $1,432m was a turnaround of $2,696 million on the revised $1,264 million deficit for June quarter 2008. The income deficit decreased $1,610 million (13%) to $11,072 million.”

But the ABS said: “In seasonally adjusted chain volume terms there was an increase of $1,088 million (11%) in the deficit on goods and services. This is expected to detract 0.4% from growth in the September quarter 2008 volume measures of GDP.” If that’s translated into the full national account figures, the outcome could be a small fall in the quarter, as suggested by Goldman Sachs JBWere economists.

But with investors focusing on highly indebted countries and companies, there was unwelcome news: our net debt has blown out sharply, thanks to the plunge in the value of the Australian dollar. The ABS said our net international investment position at the end of the September quarter rose $12.1 billion to a net liability position of $709.6 billion.

“Australia’s net foreign debt liability increased by $43.3 billion to a liability of $658.0 billion. Australia’s net foreign equity liability decreased by $31.3 billion to a liability of $51.6 billion. The ABS said the $12.1 billion increase in the net position came from net transactions of $10.7 billion; price change of $5.0 billion and exchange rate changes of a negative-$3.7 billion.”

The $31 billion fall in our net international equity position was mainly due to the slump in the value of the dollar of $57.3 billion. It was “partially offset by increases due to price changes of $22.9 billion and transactions of $3.2 billion.

“Australia’s net foreign debt liability increased by $43.3 billion (7%) to $658.0 billion. Increases (were) due to exchange rate changes of $53.6 billion and transactions of $7.5b were partially offset by a decrease due to price changes of -$18.0 billion,” the ABS reported.

That’s a record, an unwelcome one at a time when debt is a four letter word.

Read Glenn Dyer’s take on the RBA rates decision this afternoon on the website.