Car sales up, Harvey Norman’s 4th quarter sales jump, if you needed any more confirmation that the economy is doing better than the gloomsters thought, then that’s the latest installment.
So even though Access Economics is now a believer in the recovering economy thesis, you have to question their new found faith after forecasting the crunch to end all crunches earlier in the year.
In fact you’d be inclined to ignore Access and take a dip in minutes from the Reserve Bank’s last board meeting. There you will find an upbeat assessment of the economy.
In fact, if it wasn’t for the still uncertain state of the financial system, especially offshore and the continuing slowdown in major economies such as the US, Japan and Europe, the RBA assessment would have us looking for the next rate rise.
Instead the bank has again held out the possibility of a further cut from the 49 year low of 3% for the cash rate: that’s if it’s needed.
On the tone and tenor of the RBA minutes for the July meeting, the central bank reckons one won’t.
And, the bank’s view of the economy received further backing. Retailer Harvey Norman, which has struggled for most of the 12 months to June to drive sales growth, reported a 5% rise in comparable store sales in the June quarter in its Australian stores.
It joins David Jones and JB Hi-Fi in finally getting a boost from the stimulus spending.
And car sales rose sharply in June as one of the tax breaks from the stimulus spending came to an end.
The Australian Bureau of Statistics said the seasonally adjusted estimate for total sales of new motor vehicles in June rose 5.7% from April to 80,330.
That was after May’s rise of 5.4% from April. June’s car sales were still 7% down on a year ago, but that was a lot better than the 20% fall in the first quarter.
So, if you’d believed Access Economics, as many of its corporate clients did this year, you would have hunkered down for the mother of all financial crunches.
David Jones, the upmarket retailer did and sourced its gloomy statements on sales and earnings falls to advice from Access.
A month ago David Jones switched tack, revealing a surge in 4th quarter sales and upgraded earnings for the 2009 financial year.
But the Reserve Bank has taken a far more optimistic track through the year, worrying, expressing reservations about the state and direction of the economy, but never losing its cool.
It has held to the China recovery story, which was confirmed by the strong second quarter growth figures last week and pointed to the positive impact of that on Australia.
The central bank cut rates by a record amount, but oil prices also fell, cutting petrol prices and the much derided ‘cash splashes’ worked, injecting money into retailing, saving some jobs, but more importantly lifting sentiment levels among consumers.
That has now flowed through into sections of business, as last week’s National Australia Bank survey confirmed.
For the past few months the RBA has been sitting and watching the stimulus and rate cuts work their way through the economy.
At the July meeting they sat again and the cash rate remained at 3%. Judging from the minutes of that meeting, released yesterday, that’s it, no more rate cuts unless needed if the econ9omy slumps suddenly and deeply.
So Monday Access Economics joined David Jones in telling us something we had already known for over a month; that Australia was on the way to dodging the worst of the crunch that Access had forecast at the start of the year.
Business confidence and conditions have joined consumer confidence, car sales (confirmed again yesterday with another big month in June as a key tax break ended) retail sales and housing in soaking up the stimulus spending from the federal government and continuing solid exports, which continue to surprise analysts.
Now Access says there could be one more rate cut, but rates will rise next year and in 2011: Rory Robertson of Macquarie says he thinks it will be a case of ‘lower for longer’ on rates from the RBA.
But reading the minutes from the RBA board meeting, there’s now a stronger indication of central bank contentment at the way the economy has turned out.
In fact the list of developments given in the minutes reads like an economy in fine fettle.
It makes a mockery of the poorly-timed campaign launched Monday by the ACTU for a third stimulus package to target saving jobs (union members more likely).
There is just no call for more spending from what Access and the Reserve Bank have outlined.
"Recent information on the domestic economy suggested that economic activity was not as weak as had been expected. Exports had been surprisingly strong, which primarily reflected demand from China.
"Some mining companies and ports were reporting that they were again operating close to capacity," the RBA minutes said.
"Household spending had increased due to the effects of the fiscal stimulus and low interest rates, and most indicators for the housing market suggested that demand in that sector was picking up.
"Housing loan approvals had recorded a strong increase, and house prices were again picking up, with the rises becoming more widespread.
"Both consumer and business confidence had rebounded strongly from their low points. The outlook thus remained for a gradual recovery to begin later in the year, and downside risks to that had diminished.
“Labour market indicators were likely to remain soft for some time, though there were signs that employers were making efforts to minimise job shedding.
"In assessing the stance of monetary policy, members observed that the early and substantial easing of both monetary and fiscal policy had been effective in supporting demand, which, if anything, had been more resilient than expected.
