A dip in retail spending does not mean the recovery has stalled. On the contrary, it confirms the recovery is proceeding according to plan.
Back in August, the Reserve Bank released its quarterly monetary policy statement. In it, the central bank forecast the economy would grow by a half per cent over 2009.
According to the latest national accounts, gross domestic product (GDP) had already grown by exactly twice that amount by mid-year.
The brighter outlook built on that better performance to date should be evident in the next edition of the quarterly statement to be published by the RBA on Friday.
But while the strength of the expected recovery will look much different, some features of it will be familiar.
In August, the RBA forecast a switch in the pattern of growth.
‘‘The composition of spending over the second half of the year is expected to be somewhat different from that in the first half, when household consumption was quite strong and business investment and home-building were weak,’’ the RBA said in its August statement.
When the RBA announced its second interest rate hike on Tuesday, it reiterated its view that the pattern was changing.
‘‘Some spending has probably been brought forward by the various policy initiatives.
‘‘With those effects now diminishing, these areas of demand may soften somewhat,’’ the RBA said on Tuesday.
The data releases today were generally consistent with that view, which is likely to be reiterated on Friday.
Retail spending fell by 0.2 per cent in September, seasonally adjusted, the Australian Bureau of Statistics (ABS) reported.
The surges in turnover generated by the cash handouts late last year and earlier this year generated such big shifts in the seasonally adjusted series that the ABS suspended publication of its smoothed, or trend, series.
But applying the smoothing process to the seasonally adjusted data shows that if the ABS had published a trend series, it would now be falling, albeit ever so gradually, after growing at double-digit annualised rates earlier in the year.
The Bureau’s estimate of turnover adjusted for inflation - in seasonally adjusted chain volume, to be precise - showed the same sudden loss of momentum.
It fell by 0.4 per cent in the September quarter, after posting unusually large rises of 1.0 per cent in the March quarter and 1.9 per cent in the June quarter.
That has followed the official script faithfully.
So has the building industry, something confirmed by building approvals data on Wednesday.
In value terms, approvals for housing and non-dwelling construction were down by 22 per cent in September, thanks to a drop in non-dwelling approvals after a huge jump in August related to the fiscal stimulus package.
Despite that all, the total value of approvals was still $6.7 billion in September.
That was just over $1 billion more than the average for the 12 months beginning in September 2008, when Lehman brothers collapsed and turned a difficult situation into a full-blown crisis, and ending August this year.
And there are indicators that the RBA’s optimism on business investment has a solid foundation.
The National Australia Bank’s September quarter business survey last week, for example, showed capital spending plans were pointing to marginal growth rather than what NAB’s economists called the ‘‘Armageddon’’ levels seen early in 2009.
The upshot of all this is that the latest bout of data, despite the unexpected dip in the volatile retail trade series, show the economy is doing pretty much what the RBA, and no doubt the Treasury as well, expected it to be doing.
That in turn means plans for fiscal and monetary policy will not be subject to any significant tweaking - the RBA will most likely stick to its incremental interest rate rises and the government’s fiscal stimulus seems likely to be wound back more or less in line with the original blueprint.
Garry Shilson-Josling, AAP
