Rate shocks roll on

Yesterday’s profit warning from The Reject Shop was a surprise to the sharemarket, and particularly the company’s investors.

They sent the shares down a staggering 21% yesterday on the news that the company’s profit will be $21-22 million, and not $26-26.5 million as originally forecast.

But it’s not just Reject Shop investors who should be heeding this warning.

As the company’s management said, the interest rate rise handed down by the Reserve Bank on November 2 appears to have whacked already shell-shocked consumers into a state of paralysis.

The Reject Shop had, until yesterday at least, ridden the downturn in retail very nicely, thanks to its focus on selling discounted items to thrifty shoppers.

But news that even the bargain hunters have stopped spending is a real worry for retailers at all levels.

The Reject Shop announcement has also underlined the Australian economic conundrum.

Yesterday we saw extremely strong employment data, which would tend to suggest economic growth is strong. But actual GDP data and retail sales data remains weak, as do business conditions.

CommSec’s Craig James went so far as to say the employment data raised more questions than answers.

“If employment is surging, why are the numbers of hours worked barely moving? And if more Australians are working than ever before, why aren’t consumers spending?”

If the economists are struggling to compute it all, what hope do poor old entrepreneurs have?

The best thing to do is to get as much intelligence as you can and get a feel for your sector. Talk to all your suppliers and customers before Christmas, and get a sense of how they are travelling. Do your own economic study and get the information that matters to you.

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