Economists have warned that the short-term outlook for the Australian economy remains clouded, despite the release of better-than-expected retail trade and capital expenditure data.
The Australian dollar rose yesterday after figures from the Australian Bureau of Statistics showed the retail sales increased 0.5% in July, after sales fell in June and May.
While the data was something of a surprise – many economists had expected a fall – the annual pace of retail sales growth is just 1.4%, well below inflation.
And as ANZ economists Katie Dean and Julie Toth point out, trend estimates of retail sales growth in July were dead flat year-on-year – the worst reading since the ABS started collecting this data back in 1983.
CommSec’s chief economist Craig James also points out that the figures showed that clothing, household goods and department stores were all going backwards.
“The latest pickup in retail spending is hardly exciting, especially when you consider that over the 12 months to July annual growth in retail sales topped out at 1.4% – below the rate of inflation,” James wrote in a research note.
“In addition, when you strip out food, retail sales fell by 0.4% over the past year – the weakest reading in almost three years.”
The Australian Retailers Association was also unimpressed, declaring the July figures a “disaster”.
“Looking ahead to the spring season, retailers aren’t expecting a break, but rather a continuation of over 18 months of dismal trading conditions,” executive director Russell Zimmerman said in a statement.
“A weakening global economy is sending vibrations through the supply chain, affecting other industries such as manufacturing before filtering down to retail. Unfortunately retailers lose out as the point of contact with a consumer who is struggling with mortgage stress, utility costs and prognostics of reduced discretionary income as a result of the proposed carbon tax and regulatory change.”
The capital expenditure data also told two stories.
On the surface, there was good news: capital expenditure increased by 4.9% in the second quarter, and first quarter was revised from 3.4% to 7.7%.
In addition, the estimate for capital expenditure in 2011-12 was revised upwards by 6% to $148.8 billion, with the manufacturing, property and business services sectors all flagging strong investment plans.
However, much of the real growth in capital expenditure is being driven by the mining sector and James points out that the upwards revision in capital expenditure plans for 2011-12 is the weakest such revision in nine years.
“The weakness in future spending is further evidence of the slowdown in the domestic economy. The result adds further downside risks to the Reserve Bank growth forecasts, especially considering that businesses investment was expected to be one of the primary growth drivers of the economy over the next 12 months, and now has seen two consecutive quarters of spending being pared back.”
The ARA’s Russell Zimmerman wants the RBA to cut interest rates, although most economists see that as unlikely and predict the RBA will stay on the sidelines for some time.
“The Reserve Bank has no ‘smoking gun’ to lift interest rates in the short-term,” Crag James says.
“Over the past few months data has revealed declines in retail spending and employment as well as confirmed that wage growth is benign and highlighted caution about mid-term investment plans by businesses.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
