Retail sales, borrowing down as economy hits skids: Economy roundup

Retail sales fell a bigger-than-expected 1% seasonally adjusted in June in yet another sign that the economy is slowing rapidly.

The decline contributed to a 0.6% slide in the value of sales in retail and hospitality business for the June quarter, at the lower end of market predictions that ranged between -0.7% to +1%.

Poor sales results across the board contributed to the results. Household goods retailing was the only sector to experience growth in sales, up 0.8%, while department stores and clothing and soft goods retailing suffered the most with falls of 5.2% and 5% respectively.

The weakness in the sector is flowing almost entirely from New South Wales and Victoria, which have both seen falls in sales for several months. All the other states have experienced moderate growth over that period.

Softer economic conditions are also reflected in slower credit growth for June. According to Reserve Bank of Australia data, total lending rose by just 0.4% in June, continuing a trend of slowing growth.

Personal lending was by far the most negative credit segment, falling 0.4% for June, a further indication the shoppers are putting their wallets back in their pockets.

Of course, while all this is bad news for retailers, it may bring some grim satisfaction to the RBA, which will see these results as further confirmation that it has done enough to start bringing inflation under control.

The weakness of today’s results have already triggered some speculation that the RBA could bring forward a rate cut, although such a move would be unlikely before we see some tangible evidence that inflation is coming under control.

Another flow-on effect of the results is a further fall in the value of the Australian dollar, which has fallen to US94.35c by 12.15pm today.

It will be interesting to see what effect the reversal in the dollar has on Australia’s trade surplus. Data released today records a trade surplus of $411 million seasonally adjusted in June, the second consecutive month of surplus.

A big contributor to that, along with declining spending on consumer imports, has been the high dollar, which has boosted the earnings of resource exporters.

And there has finally been some good news for investors – after a week of pain, the market is finally heading back up.

A positive lead from Wall Street overnight – the Dow Jones Industrial Average shot up 186.13 points, or 1.63% to 11,583.69 – has helped inspire buying in morning trade. The benchmark S&P/ASX200 index rose 41.9 points or 0.8% to 4978.6 by 11.50am AEST, adding to a 1.8% rise a the end of yesterday’s session.

Resource stocks including BHP Billiton and Rio Tinto firmed after oil prices rose more than $US4 a barrel on Wednesday while industrial metals prices including copper, nickel and lead also gained. Even the big banks rose slightly after a few days of carnage – perhaps bargain hunters are starting to realise just how cheap the big banks actually look.

But the big loser this morning was childcare centre operator ABC Learning Centres, which dropped 11.5% to $0.73 after it warned of a pre-tax loss of $437 million in fiscal 2008 and scrapped its second-half dividend, due to asset writedowns and provisions. It seems Eddy Groves is a long way away from winning back the support of the market.