No matter what yesterday’s data drop on the economy told us about its current strength (retail sales and building approvals, two of the major stats, plus car sales), the big message was delivered by Reserve Bank Governor, Glenn Stevens in a speech in faraway Hobart (to econometricians) half an hour earlier at 11am.
His speech sent ripples through the markets, sending the dollar lower and buoying shares.
And it supported a picture of the economy that is starting to lose the growth surge seen in the March quarter of this year – a contention supported by the data released yesterday.
The retail sales figures confirmed that the negative publicity about the Federal budget and its contents (and the poor selling of the change by the Government) had knocked sales down 0.5% in May (seasonally adjusted). And just as important was the revision downwards in April’s original 0.2% growth, which is now a fall of 0.1%.
That further confirmed feels from retailers that thanks to a very warm autumn retail sales growth had fallen, or become negative.
The slide in consumer confidence and spending triggered by the budget in May added to April’s weakness, as retailers, such as Kathmandu, The Reject Shop, Noni B and JB Hi Fi have reported to the ASX in recent weeks.
Retail sales slump
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But the May building approvals showed a sharp jump because of a rise in the highly volatile area of apartment and townhouse construction. Private house approvals rose 0.5%, in an encouraging move. Approvals were up 9.9% in total, thanks to a 20% plus surge in non private dwelling approvals.
That was obviously a catch up from the backlog of April caused by the conjunction of Easter and Anzac Day which essentially shut down much of government and business for two weeks at the end of the month.
Local building approvals jump
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And figures from the car industry showed little change in June from the same month a year ago as Australians took up the end of financial year offers from car companies their dealers. Car sales are not included in the retail sales figures, as they are in the US. The end of financial year might have made the overall retail figures look better.
In trend terms retail sales were flat in May (trend terms designed to iron out volatility) after a 0.1% rise in April and a 0.2% increase March result. Retailers can thank Federal Treasurer Joe Hockey for that: the government ramped up its gloomy budget rhetoric in late April and then produced a painfully unpopular budget in the second week of May, and the impact on consumer sentiment appears, for once, looks to have translated directly into poorer retail sales.
This outcome follows data for May on bank lending, which hit a five year high, and the weak trade account for the same month, with the trade deficit boosted by falling iron ore prices, a slide in coking coal shipments to China and the impact of the high value of the dollar.
The data does support Mr Stevens contention yesterday that the economy is now slowing from the higher than expected growth seen in the last six months of 2013 and the March quarter of this year. The RBA said it was now factoring into its forecasts a slowdown in activity.
"It appears that the economy’s pace of growth increased somewhat in the second half of last year, and that this persisted in the first few months of 2014. Real GDP expanded at an annualised pace of about 3 per cent in the second half of 2013, up from just under 2½ per cent in the first half. Business survey readings are broadly consistent with this picture. The March quarter of 2014 saw a further pick up, to something that was above trend, measured either in the quarter or over the year.
A key question is the extent to which these recent national accounts data in particular illustrate the likely ongoing pace of growth. The results owed a lot to a very substantial rise in resource exports.
"This in turn reflected new capacity coming on stream and also unusually benign weather. While further rises in resource export volumes are expected, they are unlikely to be at the same pace.
"Hence, the most recent set of GDP figures, while certainly encouraging, probably overstate somewhat the true ongoing pace of growth in the economy. The Bank’s forecasts from early May, which we have not materially changed, embody ongoing growth but, in the near term, probably a little below trend. We will provide an update of forecasts next month," he told the conference.
The big news for the outlook was that the current easy monetary policy stance will remain in place for sometime to come (see accompanying story).
As usual, cafes and food managed to rise (you can’t stop Aussies from having their daily caffeine hit), while clothing (-0.6%) and department stores (-0.2%) were down, as were household goods and ‘other retailing. Food also rose. Big falls in retail sales were seen in Victoria, NSW, Queensland and Western Australia, while small rises were reported in the Northern Territory and South Australia.
"The full effects of the very accommodative stance of policy have not been seen at this stage. It will be supporting demand for some time yet," Mr Stevens said.
In other words interest rates will remain at the current level (and lower, if needed) well into 2015. And in part of his speech about communication by the central bank. Mr Stevens said that when the RBA feel the need for a rate rise coming on, the bank will change its language to make clear that such a move is on the way, by dropping the phrase "For some time yet" from his statements and the minutes of the board meetings.
