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Is Australia’s retail economy really in recession?

June 14, 2019 Headline News No Comments Email Email

Conflicting signals over whether Australia’s retail economy is in recession are raising a few eyebrows, with economists citing clear evidence of a slowing economy but latest research from Roy Morgan showing that domestic airline travel in Australia is growing strongly.

Roy Morgan says domestic air travel is up by 7% from a year ago to over 8.46 million domestic air travellers in the year to March 2019. The market research firm reports growth in customer patronage across all six of Australia’s leading domestic airlines and fierce competition between the three leaders: Qantas, Virgin Australia and Jetstar.

Against that, the latest snapshot from the National Australia Bank’s monthly business survey, released this week, suggests the economy is continuing to weaken and the struggling retail sector is now in recession.

 

Retail spending often reflects consumer confidence

Earlier this month, the Reserve Bank cut its official interest rate by 0.25% to a new record low of 1.25%, largely to support jobs growth in the face of rising unemployment.

On the ABC’s ‘The World Today’ program this week, senior business correspondent Peter Ryan said the National Australia Bank’s monthly business survey indicated “business conditions are weakening further, even though confidence is up just a little bit. But those conditions are well below average”.

Ryan noted that New South Wales was the best performing state but said the NAB survey showed Western Australia had “weakened notably” despite strength in the mining sector.

“But the big weakness is in retail; with sales going negative in the last reading from the ABS.”

National Australia Bank’s chief economist Alan Oster told the program that the private sector was continuing to lose momentum, with forward orders and capacity utilisation weakening, “however a large chunk of this survey was post the election and we’ve had a bit of a bounce in confidence. I suppose the big issue is whether that bounce in confidence will stay there or whether the economy will continue to weaken and then erode away.”

Oster said retail, “particularly discretionary retail, has been terrible for a long time. So it’s a very bad read in terms of the retail economy.”

National Australia Bank chief economist Alan Oster

Ryan asked Oster: “Given that we’ve had last week’s interest rate cut and we had that very soft GDP outcome, how important are the coming tax cuts that the government has on the table?”

Oster answered: “They are important, but most of the benefit won’t come until the December quarter and they’re not that huge.” Oster said spending on infrastructure would help “to get confidence going and people spending again”.

Roy Morgan, as noted above, points to booming domestic travel. But even there, it’s worth noting that Roy Morgan also, on Wednesday, recorded a decline in consumer confidence for a second consecutive week, although it noted that while consumer confidence dropped by 2% last week “it remains above the long-term average”.

“Time to buy a household item’ was the only ‘green shoot’, rising a solid 4.9%.”

Among Roy Morgan’s findings:

  • Current financial conditions fell by 2.7%, while sentiment toward future finances was down 2.2%. This weekly decline has resulted in the subindices closing below their long-term averages.
  • Current economic conditions dropped a significant 7.8% after rising for three consecutive weeks. It is still a touch above the long-run average. Future economic conditions fell by 2.8%, which resulted in the subindex falling below the long-term average.
  • The four-week moving average for inflation expectations fell by 0.2% to 3.8%, with the weekly reading down to a very low 3.6%.

Written by Peter Needham

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