The economy is showing signs of stabilising, with healthy retail and home sales in April and stronger factory orders in May.
Headwinds for the corporate sector remain, however, with weak corporate profits and falling inventories suggesting Australia may experience a "business recession" in the coming months.
Retail sales rose 0.3 per cent in April, seasonally adjusted, with consumers spending a record $19.35 billion for the month, the Australian Bureau of Statistics said today. That follows a 2.2 per cent increase in March.
"These figures support a Government looking to justify its stimulatory measures," said Moody's Economy.com's Matt Robinson. "It suggests Aussie households are in a lot better position than households in other major industrial economies."
In October, the Government released its first round of stimulus cash payments, which were aimed at pump-priming consumer spending to help stave off a recession. In February, another round of cash spending was announced, taking the total to $52 billion.
Sales of household goods climbed 3.9 per cent, seasonally adjusted, the ABS said, along with clothing and accessories, which rose 0.8 per cent in April.
Department store sales slumped 2.8 per cent, seasonally adjusted, in the month, as consumers put off larger purchases. Takings at cafes and restaurants fell 0.5 per cent.
Signs of life
April home sales also posted a gain, rising 0.5 per cent, the Housing Industry Association said, suggesting the RBA's low interest rates and the Government's boost to the First Home Owners grant is having its desired effect. Home sales were 3.1 per cent higher in March.
"These sales are clearly boosted by lower mortgage rates and ex-renters taking advantage of the first home owners scheme before the mid-year expiry date," the TD Securities economist Annette Beacher said in a statement. Since then, the government has extended the boost in full until the end of September and in a reduced form until the end of the year. State governments have also increased incentives.
With both retail sales and home sales reflecting Government efforts, an unofficial reading of the nation's manufacturing trade strengthened, albeit slightly.
The Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index rose by 7.4 points to 37.5 points in the month of May, seasonally adjusted, the highest level in seven months.
While still below the 50-point mark, which separates expansion from contraction, the PM Index "may indicate that stimulatory fiscal and monetary policy is having a stabilising effect," said Australian Industry Group chief executive Heather Ridout in a statement.
Nonetheless, a "business recession" may be on the cards.
A 'business recession'
The generally stronger figures in home and retail sales came alongside weakness in the economics readings important to business. Ms Beacher sees the divide as evidence of the possibility of the slowdown hitting businesses more directly than consumers.
Australia's recession is "intertwined" with a glut of business investment created during the boom years, which could weigh heavily on corporate profits and expansion in years to come.
Company gross operating profits, in current prices, fell 7.2 per cent in the March quarter, as the economic downturn took its toll.
The seasonally adjusted figures were up 6.9 per cent over the year-earlier quarter, the Australian Bureau of Statistics said today.
The median market forecast was for gross operating profits to fall by 4.5 per cent in the March quarter.
Companies expanded as much as possible during the boom creating "buckets of spare capacity" that exacerbate the effect of the global downturn on profits, even while consumer demand holds up.
"In other words - and in contrast to the position in the US and UK - Australia's recession is not centred on housing and consumer demand."
The Reserve Bank has chopped 425 basis points from official interest rates since September, bringing the cash rate to a 49-year low of 3 per cent, in an effort to coax consumers into spending.
Inventories also slumped 1.2 per cent in first quarter, from 1.9 per cent in the fourth quarter of 2008, the ABS said.
"The business sector prefers to run down inventories to meet demand, a clear sign that businesses continue to have a poor outlook for the economy," wrote Ms Beacher.
Rates and economic growth
The RBA will meet again tomorrow to decide whether to cut the interest rate again. It is widely expected the central bank will leave rates unchanged.
On Wednesday, the nation will learn how effective the central bank and the Government have been in their bid to keep a recession at bay. If first-quarter gross domestic product figures show a contraction, the nation will officially and technically be in recession. Analysts surveyed by Bloomberg expect a 0.2 per cent contraction in GDP, following the fourth-quarter's 0.5 per cent shrinkage.
Two back-to-back quarters of negative numbers are the technical definition of a recession.
czappone@fairfax-.com.au
BusinessDay with AAP
