The big picture this week focuses on a single chart which explains a lot about what is affecting retail businesses and the economy more generally.
Each quarter the Bureau of Statistics calculates the amount of spending by Australians on trips overseas and the amount of spending by foreigners on trips to Australia. The results are added to, and deducted from, household spending estimates and the net result is published.
Until June last year the result on net expenditure overseas was always a negative result, that is, more dollars were spent by foreigners in Australia than those spent by Australians overseas.
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But in the September quarter, a net $254 million was actually spent overseas – the first positive result in 21 years. For 2010 as a whole, a net $7.9 billion of tourism consumption was spent in Australia and this fell to $2.1 billion in 2011.
Simply, more Australians are travelling overseas and spending their hard earned dollars while abroad. And growth in inbound tourism has slowed, with tourists more careful about what they purchase while in the country.
In 2011, household spending grew by 6.1% – in line with decade averages. But if there hadn’t been the large shift in spending overseas, growth would have been closer to 6.9%.
Retail trade rose by 2.4% cent in nominal terms in 2011, well below the decade average growth rate of 5.5%. But if the net outflow of spending had been channelled solely into the retail sector, the growth rate would have been around 4.8%.
In short, the strong Aussie dollar had a big influence on the fortunes of consumer-focused businesses over the past year.
The week ahead
In Australia over the coming week it is all about inflation with producer prices data released on Monday and consumer prices on Tuesday. In the US, the key events are a Federal Reserve monetary policy meeting and release of economic growth data.
On Monday, the March quarter estimates on business inflation (producer prices) are released. This data release contains a raft of information on the pricing behaviour of key sectors, although the focus is generally on final stage prices (the producer price index). Over the quarter the Australian dollar rose by between 2-4%, trimming prices of imported goods. But on the other side of the equation, fuel prices rose, adding to business inflation.
On balance, we expect that producer prices rose by 0.5% in the quarter and by 2.2% over the year, suggesting that price pressures at a producer or business level are contained.
The Consumer Price Index (CPI) is released on Tuesday – a day earlier than the customary release on the last Wednesday in April. Analysts generally see this as the pre-eminent indicator of price pressures in the economy. And while it is certainly “comprehensive” as the Reserve Bank acknowledges, in practice the central bank always analyses all the other survey and statistical-based measures before reaching a judgement.
In the March quarter we expect that the headline rate of inflation rose by 0.5% with the annual growth rate easing from 3.1% to 2%. In the quarter petrol prices rose and there were seasonal increases in education fees, electricity and the cost of subsidised medicines. But there were seasonal declines in clothing and holiday travel prices.
Stripping out volatile influences, we think the underlying CPI rose 0.6% in the quarter to be up 2.4% over the year. If prices record the type of gains we expect then the Reserve Bank will have few reasons to delay cutting rates on May 1.
The other indicators to watch over the week are skilled vacancies (Thursday) and new home sales (Friday). New home sales lifted by 3.0% in February, but only after slumping 7.3% to 11-year lows in January. The Reserve Bank is showing more interest in the under-performing housing market, but it can only do so much if banks, governments, industry bodies and developers won’t address the fundamental problems.
In the US, two key indicators of home prices are released on Tuesday – the S&P/Case-Shiller index and Federal Home Finance Agency index. A raft of indicators suggests that the housing market has bottomed, but as yet there are few indications of an upturn in home prices, home buying or construction activity.
Also on Tuesday, data on consumer confidence is issued alongside data on new home sales and the Richmond Fed index. Economists expect that home sales rose from a 313,000 annual rate to 320,000 in March.
On Wednesday the Federal Open Market Committee hands down its monetary policy decision. Members have been slightly more positive on the economic outlook, however it is still very much in the realm of “cautious optimism”. Any discussion about the prospect of more quantitative easing will be important for equity and interest rate markets.
Also on Wednesday, the de-facto gauge of business investment – durable goods orders – is released. Non-defence capital goods orders (excluding aircraft) are around 10% higher than a year ago, suggesting that businesses are putting high cash balances to work.
On Thursday, the usual weekly data on unemployment claims is released alongside pending home sales data. And on Friday the first cut of economic growth data for the March quarter is released. Economists tip annualised growth of 2.3% – good but not great – but forecasts range from 2.0-3.6%.
Also worth watching is the flash reading on Chinese manufacturing activity on Monday.
Sharemarket, interest rates, currencies and commodities
The US profit reporting season cranks up another notch in the coming week and investors will be hoping that the run of better-than-expected results continues.
On Monday, 61 companies are listed to report including ConocoPhillips and Texas Instruments. On Tuesday, there are 132 companies listed to report including 3M, AT&T, Ford Motor, Office Depot, and Apple. On Wednesday, 214 companies are listed by Briefing.com to issue profit results. Amongst companies to report are Boeing, Caterpillar and Delta Air Lines.
On Thursday, the biggest day of the season so far will occur with 314 companies to report. Included are Bristol-Myers, Colgate-Palmolive, Deutsche Bank, Exxon Mobil, Amazon.com and ResMed. And on Friday, Merck, and Procter & Gamble are amongst 41 companies to issue earnings results.
Mercer has released some good economic news for superannuants. In the March quarter, the benchmark S&P/ASX 300 Index returned 8.6% with the median Australian shares manager outperforming the index by 0.3% over the quarter. But offshore stocks did better, with the broad MSCI World ex Australia Index returning 10.5% for unhedged investors and the median manager outperforming by 0.3%.