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Jul 1, 2009

Economy a mass of vaguely positive ups and downs

The Government's stimulus spending can now be seen enough in the retail sales figures, building approvals, and manufacturing figures to say that without it, things would be looking pretty miserable.


The slowdown continues: May retail sales rose, building approvals for the same month, including private houses, fell surprisingly and the slump in manufacturing continued to ease in June.

Put it another way, the Government’s stimulus spending can be seen in the retail sales figures, glimpsed in building approvals, and sighted in the manufacturing figures to the point where you can now say that without it, there would have been some pretty miserable figures being reported today.

Added to the impact of the sharp cut in interest rates, especially for home mortgage holders, the fall in petrol; prices, the stimulus spending has cushioned the Australian economy and avoided us following Japan, the US, New Zealand, Europe and the UK into the sharpest slump for generations.

Retail sales would have been a wasteland without the two spending packages (Decried by the News Ltd press, which have benefitted from the advertising by retailers), scorned by the Federal Opposition and jeered at by commentators, from the right and the left who forgot that the whole idea of the spending was to prevent a potential slump from becoming a rout and an explosion in unemployment.

As it is the slide is still happening, but at a much gentler pace: Tuesday’s private credit figures from the Reserve Bank told us that demand for loans is low, except from housing where they rose 0.5% in May, to be up 7% in the year to the same month. Other personal credit fell, business lending fell: all in all we saw once again the classic sign of a recession which is the low demand for credit.

So today’s 1% rise in retail sales reported by the ABS is good news. It supports the reports and profit upgrades from David Jones, Myer and JB Hi-Fi, but not the downgrade today from small Melbourne-based whitegoods group, Clive Peeters, which is now warning of a loss for the year to June. The ABS said that the May rise followed a rise of 0.3% in April and that very strong 2.2% rise in March. May’s rise was double what the market had been expecting.

But for building approvals, a different story. The ABS said the seasonally adjusted estimate for May for total dwelling units approved “fell 12.5% following increases in the previous three months.”

That large fall was mainly driven by a very large, 43.6% drop in other dwellings, which includes apartments and units and is far more volatile. But the ABS said the “seasonally adjusted estimate for private sector houses approved fell 2.0% following increases in the previous four months.” In original terms new private homes approved were up as the first home buyers concessions continues to feed demand.

The ABS said that the seasonally adjusted estimate for the value of total building approved fell 12.3% in May.

In the manufacturing sector activity again eased in June, but the pace of easing continued to slow.

The latest Australian Industry Group/PricewaterhouseCoopers Performance of Manufacturing Index rose by 0.9 index points in June to 38.4 points, seasonally adjusted. It was the 13th consecutive month that the index was below the 50-point level, which indicates a contraction in activity.

The survey of more than 500 companies showed that companies in four of the 12 sectors – machinery and equipment, textiles, basic metal products and fabricated metal products – saw an easing in the decline of activity.

Two sectors, food and beverages, and clothing and footwear, reported increases in activity during June, reflecting the effects of the federal government’s second stimulus package and generational-low interest rates.

But overall new orders remained weak, while employment, deliveries and inventories declined at a slower rate, like the sector overall.


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