There’s more tentative evidence emerging of the December cash splash working, despite what some commentators, opposition pollies and others might be saying. Retail sales rose 3.8% in December, and then a surprise 0.2% in January; now there’s been the first rise in 11 months in private home loans. ABS figures released today show the boost for first home buyers in the December stimulus package helped the housing sector in January, but investors continued to chop sharply into their building plans. And other ABS figures, also released today, show more signs the slump is creeping up on us as the fall in imports in January outweighed the fall in exports. Oil and fuel imports fell, as did capital goods as companies postponed investment. Exports fell, led by another sharp plunge in the value of coal shipments. That fall in exports, especially coal, is a sign of what is to come from big buyers in Asia in coming months as prices and volumes fall for our major exports. While the ABS said the seasonally adjusted estimate for total dwelling units approved fell 3.7%, the seasonally adjusted estimate for private sector houses approved rose.  The ABS said “In seasonally adjusted terms the estimate rose 1.1% to 7,042 houses, the first rise since April 2008.” This is after a 2.3% fall in December. The ABS figures show the fall in total approvals came from a 15.4% drop in the seasonally adjusted estimate for private sector other dwellings, such as home units and townhouses. The ABS said the fall, to 2054 (other) dwellings, was “the lowest estimate since December 1990.” “The seasonally adjusted estimate for the value of total building approved fell 3.4% in January. The seasonally adjusted estimate for the value of new residential building approved fell 4.3%, while the value of alterations and additions rose 0.7% and the value of non-residential building fell 3.2%.” But the news from the trade account was not good. There were signs of dangers for our exports in coming months. Australia had a trade surplus of $970 million in January, an increase of $553 million on a revised surplus in December 2008.  The ABS said the “the increase in the seasonally adjusted surplus was primarily due to the strong fall in goods and services debits mainly in capital goods and intermediate and other goods.” In other words, imports fell sharply in January, as the ABS detailed last week.   But despite this news, there was nothing in the figures that will change calls for interest rate cuts. Tuesday afternoon and yesterday morning commentators and newspapers had the Reserve Bank giving the faltering economy a “Vote of Confidence” for not cutting interest rates. A day later and a half a per cent slump in growth in the December quarter and the confidence is not so apparent. Now some commentators are suggesting that the bank was out of step, that it missed its chance, and to catch up it will have to cut rates by 0.50% next month. Goldman Sachs JBWere said that “in light of today’s data, we believe we erred yesterday in pushing back our forecast rate cuts into 2H09. The RBA cannot ignore such a material step down in economic growth in the December quarter. “The RBA is cognisant that financial conditions are now easier than what was achieved during the early-90s recession, the 2nd emergency fiscal package was material enough to warrant some caution on interest rates to avoid too much stimulus being delivered too quickly, and the RBA is likely wary a prolonged global downturn may require a more judicious use of interest rate cuts from this point forward.”  Nevertheless, today’s negative print tips the balance back in favour of earlier interest rate cuts.

Peter Fray

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