Consumers have stuck their hands deeper in their pockets because of rising fuel prices, more expensive food and higher interest rates that have combined to send consumer confidence to 17 year lows.
And as a result, figures released yesterday showed that retail sales fell in April, continuing the steep slide in activity that started late last year.
And, even though the Reserve Bank has been anxious about inflation the retail trade figures show the extent of the slowdown in the pace of domestic economic activity.
Along with the building approvals figures for April, due out later today as the RBA board meets, there’s every sign the slide in consumption is accelerating, despite higher inflation.
Building approvals have been weak so far this year and no real change is expected today.
The National Accounts are out tomorrow and are expected to show little or no growth, and a fall in the pace of expansion in the domestic economy, which is what the RBA is looking for and looking to see continue until well into 2009.
Figures for company profits and stocks released yesterday by the ABS hint at a possibly stronger contribution from those areas to March quarter activity, but with capital spending down, credit growth slowing and retailing and home building sluggish, it could be lineball.
The retail figures were a surprise to analysts who had been forecasting a rise of 0.2%.
The extent of the revisions for March and February also surprised and it is now clear the overall direction of retailing trading at the moment is down, matching the slide in consumer sentiment to a 17 year low.
There’s every chance the April drop could be revised further downwards in coming months.
And while some analysts will quibble about the fact that Easter fell early, the figures show quite clearly that retail activity is slowing: this backs up the sharp slowdown in the growth of personal credit in April in last Friday’s figures from the RBA.
The Australian Bureau of Statistics said that the seasonally adjusted estimate of turnover for the Australian Retail and Hospitality/Services series fell 0.2% in April 2008.
"This follows a revised increase of 0.2% in March 2008 (0.5% rise originally and blamed, in part on Easter falling early) and a decrease of -0.1% in February 2008 (a rise of 0.1%).
The ABS said the sectors of retailing that did worse were: Food retailing (-1.1% seasonally adjusted), Recreational good retailing (-1.2%) and Other retailing (-0.7%).
But Department stores rose, up 1.9%, Clothing and soft good retailing were up 2.9% and Household good retailing had a small increase of 0.4% in the seasonally adjusted estimate.
January, February and now April saw falls, while March was a rise of 0.2%. In trend terms the growth has stopped completely for the past two months. Growth is around 0.1% over the first four months of the year, which isn’t reassuring if you are an investor in a listed retailer such as Woolworths or Just, which is defending an opportunistic bid from Solomon Lew.
TD Securities said yesterday that it’s Melbourne Institute monthly inflation gauge showed headline inflation rose 4.5% in the year to May, compared to a rate for the year to April of 4.3%.
Although an increase, that isn’t above the expectations that the RBA has of where inflation currently is.
TD Securities said the latest figure "marks the fourth month where year ended inflation has been above 4%, having accelerated from a recent low of 2.6% in May and June 2007.
And the Housing Industry Association reckons there was a slight recovery in new home sales in April.
The Housing Industry Association’s (HIA) new home sales report said sales rose 0.1% in April, following a 6% fall in March, but that was an illusion. Houses were down and flats and units were up (which are more to do with demand from investors).
April’s slender increase ended two straight months of falling new home sales.
Sales of detached houses were 0.2% lower, while multi-unit sales rose for only the second time in the past six months, posting a 2.4% increase.
"The new home building sector was hit extremely hard in the March 2008 quarter as higher interest rate, fuel, and food bills made a further sizeable dent in housing affordability," HIA chief economist Harley Dale said in a statement.
"The subsequent flat outcome for new home sales in April provides the first evidence that these negative forces will remain in play throughout the June quarter as well."
The HIA survey was compiled from a sample of the 100 largest residential builders in Australia.
So what’s all this mean?
Macquarie Bank interest rate strategist, Rory Robertson sent these comments to readers of his weekly newsletter yesterday.
The RBA Board meets tomorrow. The cash rate will be left unchanged at 7.25%. The Board will waste little if any time considering the case for a near-term hike; simply, the case for any such move remains weak.
The RBA’s short post-meeting statement at 2.30pm tomorrow will, again, highlight its "bias to tighten" to reduce inflation pressures. More to the point, however, it will again acknowledge that the necessary slowing in domestic demand looks to be well underway.
Importantly, the list of demand indicators showing deceleration continues to lengthen. Retail sales today dropped by 0.2% in April, the third drop in four months. The level of nominal spending is 0.1% below the average of Q1, so Q2 very likely will be soft as well. (Today’s other data show solid rises in Q1 for company profits and inventories.)
Last Thursday, business spending on plant and equipment fell by 2.6% in Q1, wit
