A case of easy come, easy go for the economy?

The December stimulus had an impact on retail sales and on confidence levels and possibly on some ads.

Retail sales in December rose 3.8%, business confidence picked up, but the likes of David Jones and Myer still did it tough, as did Harvey Norman.

This morning the best performing retailer in the country, JB Hi-Fi, revealed record sales and profits for the December half, and maintained a confident outlook for the full year.

Yesterday, the ANZ jobs figure for January was down for the ninth month in a row, yet newspaper job ads surprisingly rose and the internet was very weak. The overall fall was the smallest since October.

And today, NAB’s January business confidence survey told a different story:

Business confidence returns to record lows after the December bounce (but it was conducted pre most recent stimulus package); business conditions down 5 points — half reversing the December bounce.

Business confidence fell 12 points in January – more than reversing last months jump – to a new record low of -32 points.

Business conditions fell 5 to overall reading of -11 index points – taking the index back to levels reported in October and half reversing the Government package inspired jump in December.

Falls in confidence and conditions were broadly based. That includes retailing & wholesaling – with the latter sector’s confidence level at record lows (-51 index points). Forward orders & employment remain around recessionary lows, while capital spending and capacity utilisation fall further. Exports also sharply lower. Falls, by industry, very broad based.

Survey implies around no growth (or slight falls) in domestic demand in early Q1 2009.

All in all, the contrast between the still cautious optimism at JB Hi Fi and in the NAB survey was telling.

“Sales in January and February to date have met internal expectations,” JB Hi Fi said in its statement this morning. “Whilst the retail outlook is less certain than previous reporting dates, the company is cautiously optimistic that it will have another strong year and confirms its previous guidance that sales will be circa $2.35 billion or a 28% increase on the prior financial year.”

That’s at odds with the NAB’s survey results and indicates that JB Hi Fi is the exception in local retailing.

The NAB said the level of credit availability was broadly unchanged as the proportion of firms not wanting finance again rose (because demand is just not there).

The NAB left its January downgraded forecasts for the economy unchanged with GDP expected to fall by 0.25% in 2009 – “a moderate recession” and “no aggressive kick back in growth in 2010.”

The NAB said it is more pessimistic than the Federal Government. The Reserve Bank will cut interest rates to 2% (no change in forecast) by mid-year as unemployment rises.

Macquarie interest rate strategist, Rory Robertson, said in his newsletter last night that: “The RBA could easily pause in March, with further rate cuts “spaced out” over time. In any case, further cuts are much more likely to come in 50bp lots than in 100bp lots.” More:

The RBA obviously is well aware that the deepening global and local recessions will drive unemployment significantly higher. At this stage, however, no-one in the official family -neither the RBA nor Treasury – is forecasting unemployment heading into the double-digit rates seen in the early 1980s and the early 1990s.

After having delivered an appropriately aggressive response to the post-Lehmans collapse in global growth prospects, the RBA now can make a respectable case to wait and watch for a while, if it chooses. In terms of its March decision, no doubt much will depend on the extent of weakness highlighted in Thursday’s jobs report.

Peter Fray

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