The Reserve Bank will sit at 3% for the cash rate at its monthly meeting today after figures yesterday confirmed that the economy is probably where the central bank thinks it should be: recessed, but not depressed, and with the faint hint of some green shoots.
But we will have to get through more bad figures today (although the trade numbers for the March quarter will probably be the best ever) and then tomorrow.
A continuation of the global boom in shares and commodities (with the Australian dollar reaching above 81 US cents as the greenback weakened) will help the RBA to sit on its hands.
There’s nothing in the markets (including a looming slump) to force it to cut rates again.
Not even a fall in business indicators in the March quarter, which confirmed expectations of a negative reading for first quarter growth in the national accounts to be released Wednesday.
And retail sales were positive in April, but at a much slower rate of growth as the impetus from the second stimulus package wore itself out.
Business and manufacturing sales, company profits, wages and inventories were all flat to negative, according to the survey from the Australian Bureau of Statistics yesterday.
Inventories fell 1.2% in the quarter in seasonally adjusted terms, manufacturing sales of goods and services fell 2.8% in the quarter, seasonally adjusted while wholesale trade sales of goods and services was flat (but down in trend terms, as were all other indicators).
The ABS said that the seasonally adjusted estimate for company gross operating profits fell 7.2% in the March quarter 2009, while the seasonally adjusted estimate for wages and salaries fell 0.4% in the quarter as well, pointing the way to a fall of perhaps 0.5%. Growth eased by 0.5% in the December quarter.
The fall in profits was much worse than the market had been expecting: economists had pencilled in a fall of 4.5%, but the 1.2% fall in inventories was a little better than the 1.4% drop forecast by the market.
Inventories were down 1.5% in the December quarter and down 1.1% from a year ago.
That will depend on the impact of tomorrow’s balance of payments figures for the March quarter and for the Government finance statistics for the quarter which are always a wildcard, and more so given the impact of the two stimulus packages in the past six months.
That boosted March retail sales by a strong 2.2%, but that had faded by April.
As a result April’s retail sales slowed sharply (as suggested in last week’s RBA minutes), according to figures from the Australian Bureau of Statistics, to grow by just 0.3% after the unchanged 2.2% rise in March and the 2.% fall in February.
That was weaker than the 0.5% rise forecast by the market.
The ABS said that “in original terms, Australian turnover decreased by 0.8% in April 2009 compared with March 2009. Australian turnover increased by 7.2% in April 2009 compared with April 2008."
In seasonally adjusted terms, the ABS said that there were increases in sales in Clothing and soft good retailing (+0.8%), Household good retailing (+3.9%) and Other retailing (+0.1%), while the Food retailing fell by -0.2%, Department stores by -2.8% and Cafes, restaurants and takeaway food services by half a per cent.
The fall in department store sales came after Myer management it said it had seen the worst of the slump. But they must have been referring to May.
The ABS said sales picked up in seasonally adjusted terms in New South Wales (+1.3%), Queensland (+0.8%), Tasmania (+0.5%) and the Australian Capital Territory (+0.9%).
"Victoria was virtually unchanged, while South Australia (-0.1%), Western Australia (-2.4%) and the Northern Territory (-4.6%) all decreased in April 2009."
But despite the worse than forecast retail figures, there’s a bit more evidence the stimulus is working with new home sales hitting a 13 month high.
The Housing Industry Association said new home sales increased by 0.5% in April to a 13-month high, after growing by 4.2%.
According to the Association the combination of low interest rates and the $21,000 first-home buyer’s boost have lifted prospects for the housing industry, which is expected to convert to a recovery in home building activity from the current quarter onwards.
That’s in line with RBA lending figures for April, released on Friday, which showed owner occupied lending was growing strongly, and was in fact the only area of growth for lenders in the month.
Meanwhile inflation eased in May, according to a monthly survey of prices.
The TD Securities-Melbourne Institute monthly inflation gauge fell 0.3% in May, after being steady in April.
Annual headline inflation slowed to 1.5% last month as a result, from 2.1% in April. That was the lowest annual pace since the series began. But it isn’t deflation yet, but disinflation.
The surging value of the Australian dollar should add to the downward pressure on prices if its current value of just over 80 US cents is maintained in coming months.
The survey’s measure of underlying inflation fell 0.2% last month, cutting the annual rate to 1.9% from 2.4% in March and under the RBA’s preferred target range of 2%-3%.
The core inflation measure, excluding volatile items
