Despite the surge in profits at our major retailers, private credit dropped 0.1% in May.
David Jones joined Myer and JB Hi-Fi in reporting much better than expected profit rises in the current half of the year financial year.
The reports from the RBA and David Jones yesterday are seemingly at odds.
One tells the story of a sluggish economy with low credit growth which is a sign of the continuing slump in demand for money.
The other is a sign of the impact of the lower interest rates from the RBA, plus the stimulus package and more confidence among consumers.
The RBA’s report on credit came despite another solid month for housing lending, according to figures released yesterday.
May’s fall came after a 0.1% rise in April and continues the slowing trend in credit creation this year, especially in business lending.
The RBA figures show that private credit grew just 3.9% in the year to May, down sharply from the 4.6% rate in the year to April.
As in April, housing credit was strong: up 0.5% after April’s rise of 0.6%. Over the year the growth rate was a solid 7%, slightly lower than the 7.1% in the year to April.
The Reserve Bank said "The rise in housing credit over May was mostly due to growth in lending to owner-occupiers, with only weak growth in lending to investors."
Other personal credit continued weak, falling 0.6% in May from April, the same as the slide in April from March. Over the year to May other credit fell a crunching 7.8%.
Business lending remains weak: down 0.7% in May after a fall of 0.5% in April. That left it up just 2.1% over the year to May, after a 3.5% rise in the year to April.
The Reserve Bank said: "Since its peak in November 2008, the decline in business credit has been due to falls in foreign currency denominated lending.
"These falls reflect both the appreciation of the Australian dollar over this period and some reduction in the stock of foreign currency denominated lending."
But Australian consumers are ignoring the sluggish times in some sectors of the economy, such as resources.
Going on the profit upgrades from JB Hi Fi, Myer and David Jones yesterday, Australian shoppers are not letting the rising level of unemployment or sluggish times in the broader economy, get in the way of a good spend.
It may be the impact of the Federal Government’s stimulus packages and the lower interest rates, but the rebound in spending reported in May and June also coincide with the solid recovery in consumer confidence surveys.
Now David Jones has sharply boosted its second half 2009 profit forecast from an unsteady 0%-5% estimate that it had held to since January (with negative sales growth) to a dramatic "20%-30%" lift in its statement.
The upgrade makes a mockery of those who claim the stimulus package hasn’t worked and that they would only have a temporary affect.
Retailers have been able to maintain employment levels because of the increased traffic and business and the improved second half profit will mean higher profits in 2010 than previously thought and better prospects for holding or creating jobs.
David Jones competitor, Myer earlier this month upgraded its outlook:
"Myer now expects sales for the second half of the year to be down around 1% compared to the same period last year. First half sales were down 3.7%. This contrasts with previous guidance of a 5 per cent decline in comparable sales.
"Myer expects profits (Earnings Before Interest and Tax (EBIT), Net Profit After Tax (NPAT) and Earnings Per Share (EPS)) for the full year to show a "mid to high single digit" increase on the same period last year, having previously given guidance that profits would be "similar" to FY08. "
That was similar to the upgrade from JB Hi-Fi around the same time:
"JB Hi-Fi expects to exceed average analysts expectations for the full year FY09. After continued strong sales, solid margins and cost control in the 2nd half of FY09 the company expects its profit for the year ending 30 June 2009 to be circa $92 million, a 41% increase on the prior year NPAT of $65.1 million.
"(Previous guidance was “comfortable with average analysts’ expectations of $87.1 million”). Sales are forecast to be circa $2.3 billion or a 26% increase on the prior year. Comparable store sales growth for the 11 months ended 31 May 2009 was 10.6%."
Both were solid upgrades, but nothing like the surge forecast by David Jones.
Retail sales growth generally has been modest but positive so far this year: they rose 0.3% in April and May’s figures are out later today (along with building approvals).
In the statement, David Jones CEO, Mark McInnes said.
“As stated at the time of our 3Q09 Sales announcement, trading in April was broadly flat on last year. In May and June this trend improved and we have been trading ahead of the corresponding months last year on both a Total and Like-for-Like basis.
“May and June reflects a significant positive shift in our trading performance and demonstrates the resilience of the David Jones customer and brand strategy. History has shown that we are ‘first in and first out’ of a downturn.
"Whilst we still have to trade through July to complete the fourth quarter
