With any luck we will be reading fewer articles on the lines of 1,001 ways to cook sausages in tough economic times. While appropriate perhaps in countries like the US and UK, those reports were always less relevant here in Australia.

The simple fact is that Australian consumers have actually been winners during the Global Financial Crisis (GFC), not losers. Most people have held onto their jobs, interest rates are at 49-year lows, retailers have been discounting, the government has been handing out money, and key items like petrol are cheaper now than they were a year ago.

Certainly consumers and businesses initially panicked about the GFC, losing confidence to spend, invest and employ. But now, confidence levels have been restored and many wonder why they reacted so badly. Of course it’s not just Australians that are concluding that they over-reacted. Consumers and businesses in other countries are coming to the same conclusion.

The latest retail spending figures aptly shows how we are now using our new-found confidence and improved financial circumstances to spend again. The “little luxuries” that we shunned earlier in the year are again being snapped up.

In the June quarter real (inflation-adjusted), spending rose by two per cent – the strongest gain in almost two years. And we weren’t just filling our trolleys with sausages and hamburger mince. The strongest increase was in the “other retailing” segment, a segment that includes watch and jewellery stores, garden supply outlets, flower sellers, handbag retailers and musical equipment stores. Sales across these stores soared by six per cent – the strongest increase in eight years.

The next strongest retail segment was again dominated by non-essential goods or “little luxuries”. Spending at sporting goods, toy, games and photographic outlets rose by 5.2 per cent in the June quarter. Spending was also up strongly at shoe, furniture and appliance good stores. Specialty food retailers also did well with sales up 4.8 per cent while there was also evidence that we have started dining out again. Sales at cafes and restaurants rose 3.3 per cent (the 'MasterChef effect?').

In contrast, spending on so-called “essential” goods was relatively subdued in the June quarter. By far the worst was newspapers and books with real spending slumping by eight per cent – the biggest fall in six years. Spending at supermarkets rose by only one per cent with pharmaceuticals up 0.8 per cent and liquor retailing down by one per cent.

The week ahead

The slowdown in the Australian economy has all been about confidence. The US economy imploded, dragging down other advanced nations, and Aussie consumers and businesses got worried.

So it is opportune that both business and consumer confidence readings will be centre-stage in the coming week. The NAB business survey is released on Tuesday with the Westpac-Melbourne Institute consumer sentiment index on Wednesday. Interest rates remain super-low, the global economy is healing and both share and house prices are rising so there are few reasons to be gloomy.

Also early in the week, the latest lending data is released. Housing finance figures for June are issued on Monday while leasing, commercial and personal lending data is on Tuesday. Housing is clearly the area of strength and the value of lending probably rose 1.5 per cent in the month.

Wage data will also be issued with the wage price index issued on Wednesday and average weekly earnings data on Thursday. Wages may have risen by one per cent in the June quarter and by 3.9 per cent over the year. But if there is any risk to the forecasts it is that wages grew at a slower pace as employers sought to cut costs and hold on to staff.

While the Reserve Bank Governor’s semi-annual grilling by parliamentarians is probably the key event of the week, we do have to wait until Friday to hear Glenn Stevens’ latest thinking. Expect to hear plenty of questions about the housing market with the Governor likely to emphasise the risks if housing supply doesn’t increase.

In the US the US Federal Reserve meets to decide rate settings on Wednesday. It is still too early to remove quantitative easing measures or contemplate lifting rates. But the commentary from the Federal Reserve should be more positive with signs of stabilisation in housing and labour markets.

The indicators to watch include productivity on Tuesday, international trade on Wednesday and retail sales on Thursday. On Friday, consumer prices, industrial production and consumer sentiment figures are all issued.

The latest batch of Chinese economic data will also be issued over the coming week. On Monday, consumer prices, producer prices, and trade data are released. Fixed investment figures are slated for release on Tuesday with industrial output and retail sales on Wednesday.


Some analysts and investors believe that the earnings season has barely started. But in reality, it has been going for around three weeks with 45 companies reporting and the first company reporting on 15 July. The results have been decidedly mixed and that trend is likely to continue over the remainder of the reporting period.

On Monday, Bendigo and Adelaide Bank is expected to report. On Tuesday, Cochlear, JB Hi-fi and Primary Health Care are amongst those to report. Heavyweights, BHP Billiton and the Commonwealth Bank, are slated to report earnings on Wednesday. Coca Cola Amatil, Macquarie Airports, SingTel and Telstra are listed to report on Thursday with Leighton Holdings on Friday.

CommSec has modified its sharemarket targets. We now expect the ASX 200/All Ordinaries to finish the year around 4,400 points with 4,700 points expected in June 2010.

Interest rates

What are the key factors the Reserve Bank will take into consideration when deciding the timing of the first rate hike? On top of the list will be the health of the global economy – the Reserve Bank won’t pull the trigger if it has doubts on the stability of the global recovery. But if it is convinced that the recovery is the real deal, then it will turn its attention to domestic factors. If it is confident that consumers are spending again, investment is rebounding and construction activity is generating solid momentum for the economy, then it will start lifting rates.

The Reserve Bank will give some consideration to what other central banks are doing, but given that Australia is in far stronger shape than other advanced nations, it won’t lose sleep in hiking rates well before others. The key point is that the Reserve Bank will tread warily. It may apply a few small 25 basis point moves and then sit back and gauge the effects. While it certainly doesn’t want to derail any nascent upturn in the economy, it has constantly stressed in the past the dangers of leaving rates too low for too long.

Currencies and commodities

The rebound in base metal prices has been nothing short of dramatic. Since the lows recorded in late February, the London Base Metal index has lifted by over 84 per cent. While the index still remains a substantial 32 per cent away from the highs set in March 2008, regaining the summit is no longer an unthinkable concept. Probably the most remarkable recovery has been recorded by nickel which has doubled in the space of four months.

While higher metal prices are of keen interest to our miners, Australia’s sugar farmers certainly wouldn’t be disappointed by recent price trends. The sugar price has soared 83 per cent since last December and is now within sight of topping the previous high set in February 2006. While the ascent is good news for farmers and CSR, for a raft of food producers such as Coca Cola Amatil it adds another element to the challenging times.

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