Consumer confidence slides, shares slide, retailers’ mixed results: Economy roundup

Consumer confidence slipped in January as pessimism about the economy cancelled out lower petrol prices and interest rates. The Westpac-Melbourne Institute index of consumer sentiment fell by 2.2%, or 2.1 points to 89.9 in January.

The fall erases part of the 7.5% rise in December, and leaves the index down 12.8% from the same time last year.

“Australian consumers are deeply concerned about the economic outlook. The unrelenting stream of bleak economic news, particularly from abroad, is clearly weighing heavily on the consumer psyche,” Westpac senior economist Matthew Hassan says.

Hassan also says the economic conditions are ripe for another interest cut by the Reserve Bank, and expects a 0.5% reduction to the official cash rate on 3 February, bringing the official rate to 3.75%.

Employer confidence has also taken a tumble, with the Hudson Employment Expectations Survey dropping by 19.9% in the first quarter of the 2008-09 financial year from a year earlier.

The survey shows the percentage of employers set to reduce full-time staff increased by 10% to 17.3%, while employers set to increase staff dropped by 10.3% to 22.7%.

Hudson Australia/New Zealand chief Mark Steyn says the global crisis has triggered uncertainty among many employers.

“Many employers have become overawed by the situation as they try to balance the need to hold on to quality staff with the pressure to improve productivity, while at the same time reducing costs. As a result, we have seen an increasing number of employers shift to a very passive, wait-and-see approach, opting to bunker down until the market improves.”

Shares slide

The Australian sharemarket has opened lower today, after Wall Street suffered its worst inauguration day slide. The benchmark S&P/ASX200 index was down 50.7 points or 1.46% to 3425.9 at noon AEDST.

The dollar has also lost ground, sliding back to US64 cents.

Banks remain under pressure from nervous investors. NAB shares have dropped 3.6% to $17.73, while Commonwealth Bank shares have fallen 2.7% to $25.63.

BHP Billiton shares have also dropped 2.7% to $28.16, while Wesfarmers has gained 0.3% to $16.65.

In the US, Wall Street suffered its worst inauguration day slide in history. The Dow Jones Industrial Average fell 4.01% while the Standard & Poor’s 500 index also dropped 5.28%.

Overseas, Canada’s central bank has dropped its official interest rate to a 50-year-low of 1%, and predicts more cuts over the coming year. The bank says it will judge the economy “”to what extent further monetary stimulus will be required”.

Retail shows some strength, but brace for pain

Meanwhile, following Retail Food Group recording positive sales for the first half of the financial year, clothing retailer Country Road expects an 80% rise in profit for the same period.

In a statement to the Australian Securities Exchange, the company says it expects a pre-tax profit of between $13.6 million and $14.4 million for the six months ending 31 December. Chief executive Ian Moir says the performance is pleasing considering the current economic conditions.

“We are conscious of the widely held view that the domestic economy is yet to experience the full impact of the global economic slowdown, and therefore we remain cautions about growth prospects in calendar 2009.

“However, we believe our business is now more capable of negotiating a slowdown in domestic retail conditions than it previously has been.”

Other retail groups seem to be doing just as well. Grocery chain Aldi is preparing to expand on Australia’s east coast, with the company set to open its 204th store in Canberra this month.

The group, which opened 13 stores in December, expects to stick to a previous goal of opening 30 stores a year. Managing director Michael Kloeters told The Australian Financial Review that expansion is necessary for competition.

“If we want to be competitive we must get more stores. What we have been noticing is that property prices are declining. That is a very important thing for us. Why would you rush into a property deal when there is a better one around the corner? The property market is easing, providing additional opportunities, and that is something we really need to look at.”

And Australian Pharmaceutical Industries has also forecast a first-half net profit rise by as much as 10%. But chairman and Priceline brand owner Peter Robinson says it will still be a “tough year” ahead for the group.

“Christmas sales came through very late and were in fact very strong in the days after Christmas,” Robinson said during the company’s annual meeting.

“We were pleased to record sales ahead of last year and we believe that at this stage… it puts us on target to improve on last year’s first-half net profit after tax of $6.1 million by up to 10%, assuming that trading continues as expected in the final six weeks of this period.”