Retail sales are not traditionally a lead indicator of economic movement so the fact that David Jones appears to have come through the other side of the recession before it officially got started is bizarre.

David Jones, like all other retailers, had a pretty poor year in calendar 2008. It got a bit of help from the stimulus package in December and further government handouts in 2009 but in April, May and June David Jones experienced a boost in sales that it didn't really expect.

This morning it increased its profit guidance covering the three months to July 2009 to an increase of between 20 and 30 per cent over the same period last year.

And this translates to a bottom line improvement in the year to July 2009 of 8 to 12 per cent.

In part this reflects the fact that last year was so lousy that it was a little easier to improve on.

But there is no doubt that David Jones has managed its way well through this retail recession. It's pared back costs and kept its inventory right in order to minimise the impact of depressed sales.

It's also managed to keep its balance sheet in order - which augurs well for shareholders receiving a tidy increase in dividends at the end of this financial year - assuming it sticks with its traditional payout ratio of about 90 per cent.

But  managing costs and the cycle well is only part of the story. There is nothing its chief executive Mark McInnes can do to influence consumer confidence, which is what ultimately drives retail sales.

While many David Jones customers would not have received a payout, the stimulus package could have improved general confidence levels.

But McInnes strongly argues that the state of the stock market moves the confidence levels of his customers. And for the past couple of months this would have played beautifully into the hands of this upmarket department store chain.

The question is what will happen after the clearance sales are finished and the government's hand-out piggy bank is empty?

McInnes talks about the effects of the resilience of David Jones customers. And it's not all that surprising because after all the doom and gloom they still have a job and for a while at least the share market is moving north.

It's almost like consumers got tired of being careful and waiting for the recession and cautiously started to open their wallets.

eknight@smh.com.au

SMH