According to the Reserve Bank, the economy may be sliding into recession but some economists have said we shouldn’t expect an interest rate cut next week as a result of the central bank’s comments.
Well, maybe. But after yesterday’s dismal retail sales figures for February, a rate cut of 0.25% at least, should not be ruled out.
While some commentators claimed the fall meant the retail sector was bottoming, it was from a bigger than expected rise over December and January.
The RBA had mentioned in the minutes of the March board meeting (where it didn’t touch rates) that its sounding with retailers had found retailing had weakened in February.
But the figures out yesterday showed a much steeper than expected fall in retail sales in February.
That may force a revision in those ideas, as could falls in manufacturing and several other bits of data.
The RBA board meets in Brisbane next Tuesday for April.
The data flow has turned sour since the March meeting and those hints of ‘green shoots’ some people have been talking about have started browning off.
Retail sales and housing are weak as the December stimulus disappears. Today we find out how strong the trade account is.
Forecasts are for another large surplus as imports are cut by the slumping domestic economy.
In the US another nasty fall in home prices in January (down 19% in the year to January and down 2.8% in the month on December) isn’t good news and undermines the sense of a steadying in the housing sector from those rises in new and existing home sales
Here the flow of information from the Australian Bureau of Statistics for February started yesterday and it wasn’t all that encouraging with a distinct sign the slump deepened in the month.
The February credit figures from the Reserve Bank yesterday were flat with business lending down a long with some personal spending: only private owner occupied housing was strong.
But yesterday we discovered a sharp fall in retail sales in February, down 2%, seasonally adjusted. It was much deeper than the market expected, while the 7.8% rise in building approvals was OK on the surface, it was again distorted by a lumpy rise in approvals for non-private dwellings.
Together with another contractionary month for manufacturing, another cut in steel production from OneSteel, the number two producer and a sharp fall in skilled job vacancies for March, the picture is of an economy stumbling lower.
The RBA may want to wait another month to see what happens, but it’s clear the December stimulation is exhausting itself, the 4% cut in interest rates isn’t dragging people into big new spending commitments or helping business borrow.
Even if there’s still some growth in private dwelling approvals, that’s the first home buyers grant at work, not underlying demand or just the big rate cuts.
Private dwelling approvals however are not up that much at all: in fact they were still down 23% in February from the same month of last year.
The fall in retail sales was much deeper than the 0.5% cut drop forecast by the market.
But the January rise of 0.2% was upgraded to a rise of 0.5% in the latest figures.
That followed the now 3.8% surge in December retail sales (originally 2%), suggesting there is still some strength there, but it is fading..
Hence the need for the second round of stimulation, which was due to start being paid next week, but could be held by the challenge to the legality of the payments in the High Court by a legal academic. A decision has been asked for by later today by the Federal Government.
The ABS said in its release yesterday
that the fall was uniform: across all sectors of retailing and most of the country, bar Tasmania. Not even food was spared. Department stores where hit hard as well.
"In seasonally adjusted terms, "all industries had a decrease in February 2009 – Food retailing (-0.4%), Department stores (-9.8%), Clothing and soft good retailing (-2.7%), Household good retailing (-3.8%), Other retailing (-0.3%) and Cafes, restaurants and takeaway food services (-1.3%)."
And apart from a rise of 1.3% in Tasmania, the ABS said all states "had a decrease in February 2009 – New South Wales (-2.4%), Victoria (-1.3%), Queensland (-2.2%), South Australia (-2.4%), Western Australia (-2.7%), Northern Territory (-0.1%) and the Australian Capital Territory (-0.5%)."
The apparent sharp rise in building approvals was driven by a sharp rise in the number of approvals of other dwellings, such as home units and townhouses; private house approvals edged up 0.1%.
All these figures were out after economists at Goldman Sachs JBWere yesterday changed their forecast from a rate cut by the RBA board next Tuesday to one of no rate cut.
They said the speech by Deputy RBA Governor, Ric Battellino "has gone a long way to reducing the probability of an April interest rate hike. We had expected the RBA would need to recalibrate its growth view significantly lower.
"However we believed it would be very difficult to articulate why it wasn’t cutting rates further at a time when it was acknowledging the onset of recession and the unemployment rate was already rising.
"Nevertheless, this is exactly what the RBA has done in this speech.
"The RBA now expects economic growth will be negative in 2009, but Battellino continued to jaw bone
