Your editor is back. Kind of. We still haven’t been able to muster the stamina to make it in to the Old Hat Factory, so we’ll write from a drizzly Frankston today and tomorrow.
As we take back the reins from the Daily Reckoning’s Dan Denning, something struck us. In fact it struck us so hard we had trouble sleeping last night. Whether it was the thought I’m about to share with you or the throat, head and aching limbs I can’t be 100% certain, but think about this…
Whichever way you want to look at it there is almost universal acceptance that Australia is in a recession. We’ll let the economists and commentators argue over the definition of a recession. And whether it is a ‘real recession’ or a ‘technical recession.’
All your editor knows is that if an economy grows in one month then it has grown. Therefore if it shrinks in one month then it has shrunk.
So, we’re trying to piece together the reason why retail sales increased by 12.2% in March compared with February.
Isn’t spending supposed to slow down during a recession? That’s what a recession is. Companies produce less and consumers demand less. But what could it mean if consumers have put in the biggest March spending spurt since 2007?
That was a time when asset values were higher, unemployment was lower, and job security was a lot higher.
“Ah,” you say, “interest rates were much higher then, now there is a greater amount of disposable income.” That’s true, but even that doesn’t seem to make sense. Because at least as recently as early this year the banks were claiming that most (over 70% if we recall correctly) of borrowers had chosen to maintain higher mortgage repayments rather than move to a lower repayment.
Further anecdotal evidence suggests that consumers are tightening their belts and not spending as much as they were before. Of course, being anecdotal there’s no hard evidence to back it up.
Anyway, let’s look at some statistical ‘facts’ from the Australian Bureau of Statistics…
Every retailing category shows an increase. Some commentators and analysts might want us to jump for joy at these statistics. They may want us to be amazed at the ‘resilience’ of the Australian economy.
Far from being excited at these latest retail numbers, it could bode something more fearful. That is of course inflation. And the government’s bonus bribes have only added fuel to the fire.
You see, it’s during a recession when prices are supposed to ease back. Companies that have over produced during the boom times have to discount their stock heavily in order to get it out of their inventory. Now, we’ve seen that to some extent, and that could partially explain the static numbers for the ‘Household Retailing’ category above.
But we haven’t seen much discounting when it comes to food retailing. And we definitely haven’t seen any discounting from cafes and restaurants.
From what we can see, these retailing numbers may potentially tell us more about the real rates of inflation than the ABSs quarterly CPI numbers.
If as the anecdotal evidence suggests, that people are spending less and saving or paying off debt, then an increase in retail spending can only suggest that enough people are spending more, subsidized by government bribes, and helping to keep prices high.
It’s a recipe for higher inflation, and soon enough even the official inflation gauge will show it.