Australia | Jun 15 2009
By Greg Peel
It’s not exactly rocket science, but the numbers are worth analysing. Australia’s monthly retail sales figures have been extremely volatile on a historical basis of late, and this can be quite simply attributed to government fiscal stimulus. While the government has suggested another hand-out is not out of the question if deemed necessary, it won’t be happening immediately and not at all if the general market recovery is sustained.
The following graph tells the story:
In December last year, the government handed out a total of $8.7bn in stimulus cheques. This was immediately reflected in a big jump in retail sales as one might expect, exactly as the government had hoped for. Indeed, the government attempted to subtely suggest it would be un-Australian to hang on to the money, even if it meant a big splurge on the pokies. The specific group of recipients responded in kind, although, as the Westpac economists note, they mostly held off to January to take advantage of post-Christmas bargains.
Hence a big spike in sales in January, followed by an offsetting big fall in February once the money had been spent.
February also represented what we now hope to be the GFC’s darkest hour, when there seemed nothing would halt a crumbling stock market and nothing could prevent Australia from sliding into recession. January might have seen a free flutter, but by February it was all about battening down the spending hatches.
Thus the government went in for round two – this time for $12.8bn and for a much wider group of Australians. Again the prime minister and treasurer adopted JFK-esque rhetoric (ask not what your country can do for you), encouraging recipients to get out there and do their bit. Retailers did their bit as well, given suddenly every fridge on special was reduced to $899, and every trip to the mechanic strangely came in with about a $900 quote.
Westpac calculates this second round of hand-outs saw $4.3bn enter the market in March, pulling us back from the brink, with another $6bn spent in April to post a positive retail sales result once more. That leaves $2.5bn to be spent, which Westpac suggests will trickle into the market over May, June and July. It is curious that the economists are making no allowance for cheques that were used to pay down debt or simply saved.
The implication is that May retail sales will show a very sharp drop off, not dissimilar to the February result, with June also showing to the negative, as the above graph suggests. Nevertheless, the economists admit that prevailing sentiment clouds the issue.
Or more correctly, they suggest the two stimulus payments make it hard to extract the true underlying trend in retail sales and thus make accurate forecasts. One must consider that February can now be considered the darkest point before the dawn, and that “green shoots”, culminating in a positive first quarter GDP, have sent consumer confidence soaring by comparison. Lower interest rates and petrol prices have also assisted, although the latter is under threat again.
So just how will Australians respond? Take the “no recession” line as a cue to stampede Hardly Normal again, or stick to the austerity plan in the face of potential unemployment? It’s a tough one.
Either way, however, Westpac feels the lack of further government stimulus must make a big enough difference to send retail sales growth back into the red, leading to a more subdued May-July period.
