An interesting thing happened on the way to Christmas last year — the $10.4 billion Economic Security Package not only worked, but worked nearly exactly as Treasury had forecast it would.

If you happened to be one of the unfortunate sods that source your news and current affairs from the shallow end of the commentariat gene pool — say for instance, from the likes of Andrew Bolt — you’d probably be under the impression that “All the Prime Minister’s spending so far — not least last month’s $8 billion of handouts — has failed.”

The problem with making calls like that — calls that even the Opposition were making up until the morning of the release of the latest ABS retail turnover data — is that it’s an exercise in making stuff up. Not that these types seem to feel any shame in being so utterly wrong so often — politicians and partisan pamphleteers share a shamelessness gene that puts snake oil salesman to… er, shame.

If we look at the seasonally adjusted retail turnover data up to the end of December, something pretty interesting grabs you by the eyeballs:

Don’t let the enormity of the big spikes on the original series freak you right out, that’s just what happens — we spend a lot more in the Christmas season than we do at any other time. It’s the Seasonally Adjusted figure that we’re interested in here, as that is the series that adjusts for our seasonal spendathon and smooths the expected monthly volatility out.

That sharp uptick in the seasonally adjusted value for December would not have occurred without the Economic Security Package. It caused such an abnormal shock — abnormal even taking into account the large spike of activity that occurs over the Christmas period — that the ABS didn’t release their usual trend estimate for December because of the pure irregularity of it all.

So how much did the stimulus package pump into the economy that otherwise wouldn’t have occurred?

Peter Martin and his Age comrades estimated the figure to be $884 million. I used a slightly more complicated technique and arrived at around $900 million plus or minus $100 million. It’s either a case of great minds think alike or fools seldom differ — but the actual figure of how much flowed through as a boost in consumer demand certainly appears to be in the ballpark of 7 to 9% of the value of the stimulus package.

“7 to 9%,” I hear you say, “That’s not much!”

And you’d be correct — but that’s actually good news.

Treasury estimated when the package was released that around 30% of it would be saved, 30% would be spent in the first quarter of 2009, another 30% would be spent in the second quarter of 2009 and only 10% would be spent in the run up to Christmas. 7 to 9% plus a smidgen more for what inevitably flowed through into the informal economy (that part of the economy that can’t really be measured properly) is as close to 10% as you’ll get. Treasury was spot on.

Let’s hope they are spot on again, for if they are there will three times as much stimulus flowing through between January and March and again between April and June than there was before Christmas. If you look at that chart, there is usually a bit of a retail hangover after the Christmas period — that’s the perfect time for the rest of the stimulus to flow through — propping up the depth of the usual trough and helping to take the rough edges of the size of the slump that would ordinarily happen in January and February.

In the meantime, the $6 billion that is estimated to flow into the economy over the next six months or so will be sitting in bank accounts or paying off debt until the time comes when consumers decide to open their wallets — either by using the cash from the government payments directly, or by retaking on credit to make purchases, credit that they had previously retired by using those government payments attached to the Economic Security Package.

Peter Fray

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