The Senate has a committee running around the country trying to find out if the stimulus spending by the federal government has worked.
This week a group of economists appeared, next week it’s the head of Federal Treasury, Dr Ken Henry and the Governor of the Reserve Bank.
The stimulus is working, but there are doubters.
So far we’ve seen the loss in unemployment steady a touch, job ads pick up, but more importantly, sharp recoveries in the levels of confidence among consumers and business, with business conditions also edging forward according to surveys from the NAB and the Australian Industry Group, and the service sector.
Those who can’t see how the stimulus payments have helped keep the economy from recession (but not from feeling some impact from the global slump) obviously understand the messages coming from the country’s major retail chains (groups such as Woolworths, Wesfarmers, Premier Investments Just Group, JB Hi-Fi and Myer).
Earlier in the week Solomon Lew’s Premier Group reported a sharp rise in earnings because of a big jump in second half sales and profits at Just Group.
That was after a very weak first half.
JB Hi Fi had a similar experience, while Woolies Big W chain saw a sharp second half improvement.
The second half is normally the weakest for all retailers because its winter and there’s the absence of the Christmas selling season, which falls at the end of the first half, and normally sales growth slows.
At the start of the year retailers were very nervous about the outlook for the second half. Only food based giants like Woolworths and Metcash were seen as doing well and their shares were chased up as a result.
Investors sold off Premier, JB Hi Fi and David Jones amid worries about the impact of the slump on sales and earnings.
That didn’t happen, and the sharp rise in second half sales and profits wasn’t driven by anything but a combination of the stimulus spending and the improvement in confidence.
Reserve Bank figures show that credit card use in the June half has been low, with consumers paying back more in some months than they did last year. Debit card transactions are up, eftpos transactions are up, but credit purchases have dropped.
Treasury head, Dr Ken Henry on Wednesday pointed to the strong contribution from the government’s stimulus spending to Australia’s solid economic performance.
He told a company directors lunch that the economy would have contracted during the course of the global economic crisis if stimulus measures had not been put in place.
"If it were not for stimulus measures the Australian economy would have contacted, with GDP (gross domestic product) falling by 1.3 percentage points over the year,’’ he told the function.
Yesterday it was the turn of David Jones to produce figures that clearly show how the upmarket department store group also found rich pickings from the stimulus payments earlier in the year.
David Jones reported a full-year net profit of $156.5 million, up 14.2% on the previous financial year’s profit of $137.1 million.
The result was the biggest profit for the group since it listed in 1995. The second half profit was up a strong 36% to $65.4 million.
David Jones second half dividend of 17 cents per share fully franked was against 16 cents per share for the second half of 2008, so shareholders get a cut from the stimulus, as will taxpayers with David Jones paying more tax than it would have expected to pay at the start of the year.
But like so many retailers, such as Premier and Mr Lew, David Jones and CEO Mark McInnes claimed all the credit for the improved result, and allocated none to the stimulus spending and cuts in interest rates.
How quickly they forget. It was only in January that Mr McInnes was warning that the company was facing negative sales growth and lower earnings: that didn’t happen.
David Jones shares fell 5% at the opening yesterday in reaction to the result, and the fairly conservative outlook from the retailer.
They ended down 3.9% at $5.44, a fall of 22 cents.
Investors are now also worried that the impact of the stimulus has faded.
“The next cycle in the economy is an upturn. History shows that our business is ‘first-in and first-out’ of a downturn," CEO Mark McInnes said in yesterday’s statement.
"With stage 1 of our Bourke Street store redevelopment being unveiled in time for Christmas 2009 trading, our strong business model and growth strategy, we are well positioned and poised for growth.
“Pleasingly, our sales in the first eight weeks of FY10 are better than expected.
"To date our sales increase is better than that reported in 4Q09 with Total Sales up on last year. This is a good sign as we begin to cycle the worst of last year’s downturn and head into the all-important Christmas trading quarter.
"Whilst we are cautiously optimistic, it is important that we trade through 2Q10 before giving any guidance update and accordingly we reaffirm our guidance of 0% – 5% PAT growth in FY10,” Mr McInnes said.
Obviously the market was expecting something a bit more upbeat, but after the gloomy statement in January, the company seems to be holding fire until it can get a better handle on how the economy and the consumer are travelling as we head into Christmas.
Despite the strains during the year, David Jones total cost of doing business as a percentage for 2008-09 was 30.3%, up 0.30%.
It said gross profit percentage for the second half of financial year 2009 was up 0.50% on the second half of 2008, delivering a full year result of 39.6%.
(That is nearly 40 cents in every dollar is gross profit. So much for the downturn.)
Sales fell 5.4% to 41.985 billion from $2.098 billion in 2008, but that was mostly due to a 6.4% fall
