Retail takes a dive in NSW

NSW has fallen victim to the two-speed economy, suffering a collapse in retail sales in a year in which the rest of Australia inched ahead.

Retail figures published yesterday show Australian sales rose a meagre 2.6 per cent during 2010-11 - the worst result for half a century, since the 1961-62 recession.

When adjusted for inflation, national sales barely grew, rising 0.6 per cent, much less than the rate of population growth.

But in NSW spending sank. Unpublished Bureau of Statistics figures made available to the Herald show the volume of food bought in NSW over the year fell about 1 per cent, the volume of clothes and shoes fell 6 per cent and the use of cafes and restaurants fell 8 per cent.

Only in one of the six categories identified by the bureau did the volume of goods bought rise - a miscellaneous category known as "other retailing".

Yet in Victoria the volume of goods bought climbed in four of the six categories.

"The two-speed economy is reasserting itself," said an ANZ economist, Katie Dean. "With the possible exception of Victoria, it's the mining states versus the rest."

So bad were the national figures that the futures market began aggressively pricing in an interest rate cut one day after the Reserve Bank said it was considering pushing rates up.

By late yesterday the market had priced in a 62 per cent chance of a rate cut at the bank's September 6 board meeting, up from a 28 per cent chance a day earlier.

The odds of two cuts by December rose to 100 per cent, compared with 5 per cent the day before.
Westpac's chief economist, Bill Evans, who publicly predicted rate cuts a month ago, took no joy from finding the market had caught up with him.

‘‘I don’t treat it as being particularly encouraging that our view is being justified;  it can disappear tomorrow,” he said.

The Treasurer, Wayne Swan, blamed overseas developments, saying that “one of the reasons consumers are cautious is we are still living with the aftershocks, if you like, of the global financial crisis”.
The sharemarket fell to its lowest point in almost a year. The S&P/ASX200 index fell 100.8 points or 2.27 per cent to 4332.8. This followed the Dow Jones index dropping 2.2 per cent on news that personal spending in the US had fallen for the first time since its recession. The Australian dollar fell US1.5¢.
The Productivity Commission is today expected to recommend a broad range of long-term measures to try to reinvigorate the retail sector.

The Assistant Treasurer, Bill Shorten, asked the commission to inquire into the future of Australian retail in December. The inquiry was prompted by complaints by large retailers that goods bought over the internet from overseas and worth less than $1000 were GST-free.

The retailers wanted the GST threshhold lowered but the government refused, saying it had no intention of increasing prices for shoppers.

The opposition was also unsympathetic.

Lowering the threshold to apply the GST would not be enough to level the playing field between retail and online sales.

It is understood that the Productivity Commission also endorses the view that if the threshold were lowered, the cost of customs officers opening thousands of packages sent from overseas would outweigh any revenue benefit from collecting extra GST.

The commission’s final report is  due in November.

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Why are we squirreling money away?

Consider the following economic snapshot of Australia:

  • Unemployment rate around 5%
  • In the middle of a mining boom
  • Relatively stable and historically low interest rates
  • Positive economic growth around the 4% mark
However, it seems we'd rather save our money than spend it ...
  • Australia's household savings ratio is about 11.5% (up from 2.2% in 07/08)
  • Australian households now have about $500 billion dollars worth of deposits sitting in banks
So why doesn't our rosy economic outlook compel us to enjoy the good times? Why have we become a nation of savers squirreling money away?

The media, experts and pundits have all put forward theories:
  • Baby Boomer investments have not recovered since the GST and meaning they are now worried about their standard of living going into old age
  • Price increases across necessities such as electricity, groceries and petrol have put pressure on discretionary spending
  • We have a two speed economy, e.g. retail vs mining
  • We are shopping online more and behaviour is being reinforced by a strong Aussie $ and good experiences 
  • Post-GFC residue
  • Bad economic news from Europe and USA 
  • It's been a bad news year, e.g. floods, fires, tsunami and earthquakes
  • Paying down debt is considered as smart 'saving' - and saving is the new spending
  • Happiness studies tell us consumption isn't going to make us happier
  • (...and according to David Jones) The Carbon Tax
Whatever the cause it's clear we are currently in the mood for saving rather than spending.

Maybe we just need the Aussies to win the Rugby World Cup?