Retail good, developed world cactus

Retail trade - where we've been could show where we're headed.

This morning's Reserve Bank statement on monetary policy fills in a key gap in the Governor's Tuesday explanation for leaving interest rates steady: yes, most of the developed world is still cactus.

But on the other hand, a further examination of yesterday's retail trade figures can make a fella wonder just what all the fuss has been about.

So, dealing with the good news first, the accompanying Australian Bureau of Statistics graph tells a story that has been befuddled by many thousands of words.

Seasonal adjustment of raw numbers is an inexact science – a dip of a fraction of one per cent in one set of adjusted numbers is never a good reason for wrist slitting. The "trend" series smooths out the wobbles and, voila, Australia's retail turner over the past two years has actually been travelling along quite nicely. It's not boom-time stuff, but you'd be a spoilt brat with ADHD to complain.

As I've written here before, the RBA has a good handle on what's really happening in the shops well before the ABS figures come out because of its confidential questioning of key corporations.

(As a digression, I do wonder sometimes why the big-four-bank economists aren't much more accurate in their forecasts than the rest of the commentariat given that everything washes through their institutions, but that's another story.)

Hence the RBA can write today and told its board on Tuesday: "The stronger employment data have helped lift consumer confidence which, together with a recovery in household wealth, has supported consumer spending, despite the fading of the effects of the earlier cash payments to households. Notwithstanding this resilience, many households are still taking a more cautious approach to their spending than was the case a few years ago, with the household saving rate having risen."

That summarises as: retail sales are holding up nicely despite the cash splash fading, but the punters aren't entirely stupid and are saving a bit more as well.

Bad news

The extent of the bad news in the statement is a paragraph that fills out a sentence or two in the Governor's Tuesday statement. It mirrors the key excuse for last night's global markets' wobbles:

"Although the outlook for the world economy as a whole has improved, significant uncertainties remain. One question is the durability of the recent growth in the major advanced economies. In many of these economies, current growth rates are being boosted by the dynamics of the inventory cycle and temporary fiscal measures. This is to be expected at this stage, but for a sustained recovery to take hold, a substantially stronger pick-up in private demand than has been evident to date will be required. Many of these countries also face very significant fiscal challenges that will need to be addressed over time and have banking systems that are still experiencing credit losses from the weak economic conditions."

And the translation for that is: the US and most of Europe remain cactus with plenty of problems still ahead.

Those only interested is seeing the glass half empty will seize on that, but the reality is that despite the developed world's worries, the RBA believes global growth will still be about 4 per cent, trend, this year and next.

Fortunately for us, we're the rare anomaly of a developed nation that is nonetheless part of the emerging economies that are providing the bulk of that global growth.

Along with various domestic factors involving housing and infrastructure and sound financial institutions, what follows for our economy is the RBA's "central forecast" of Australian economic growth of 3.25 to 3.5 per cent both this year and next.

And the opportunity that provides for competently managed businesses is very nice indeed.

Michael Pascoe is a BusinessDay contributing editor and, by way of disclosure, the Pascoe family super fund has been happy to pick up a few retail stocks as the market fell this week.