It's hard to be optimistic for retail

Listening to Myer boss Bernie Brookes talk about the first-quarter sales result, which is a harbinger for the all-important Christmas period, doesn't really inspire optimism about the retail sector.

Like most retail bosses, Brookes points to a bit of a bounce since the federal election and in Myer's case it wasn't a dead cat bounce (as it was with some others), but rather just a smallish one.

For Myer, the sales trend is improving, but it's skittish. The October-quarter sales it announced on Wednesday were ahead of the previous corresponding period, but not by much (and the comparative period was not a strong one).

The same can be said for David Jones whose recently released first-quarter sales were better than expected. The positive response to both these sales outcomes reflects expectations being subdued rather than the results being robust.

If we factor in the tendency for chief executives to err on the side of caution when talking about future revenue and profit performance, it's a fair bet that David Jones and Myer are looking for a better Christmas than they had last year.

But they are wise not to project too much further forward with any degree of certainty. Brookes described retail conditions as patchy and inconsistent. The conditions he sees in his organisation change not on a weekly, but on a daily, basis.

Some new product on the shelves - the launch of an updated Apple device, for example - can yield a positive week. A few warm days can result in a minor burst in apparel sales, while a rainy day can bring customers in for some Christmas shopping.

But in a strong environment retailers talk about what differentiates a good day from a bumper day, not a mildly negative day from a mildly positive one.

Sales of Christmas conifers, tinsel and wrapping have been promising, but retailers need more than this.

Despite the recent hype, the retail environment remains soft.

The glass-half-full proponents will be buoyed by the release of positive consumer sentiment data on Wednesday. But the fine print from this survey suggests pretty clearly that the rise in house prices is behind the latest feeling of financial well-being.

The states in which house prices rose most strongly correspond directly to those with improved sentiment. It's called the wealth effect - it's tangible but not necessarily sustainable.

Whether this translates into increased spending on discretionary items remains to be seen.

Knowing that your house is worth more is one thing. This is about having a perceived improvement in your personal balance sheet.

The more meaningful measure of one's ability to spend is household cash flow. The RBA has been tardy of late in lowering interest rates and the chances of a rate cut before Christmas are diminishing.

Meanwhile, employment figures (a more important input) are stable but only because job seekers are leaving the market, not because large numbers of new jobs are being created.

And wages growth is slowing to its lowest level in three years. The conclusion by Citi economists is that slower wage growth implies slower growth in consumption spending unless households decide to unwind savings balances, borrow more or unlock wealth.

"We doubt that households will leverage-up to spend, which leaves savings and wealth effects. The rise in house prices should support some expenditure growth, but we do not expect an imminent increase back to trend expenditure patterns in the short term."

When all these factors are combined, it is hard to see how retail spending will receive much of a stimulus in the medium term.

The wealth effect is a good start but it needs a kicker from broader economic growth and this is yet to emerge.

The concept of the green shoots were evident over at Seven West Media, where its chief executive Tim Worner is hopeful of improved market conditions in December but says the broader ad market remains soft and unpredictable.

The Seven Network's key "tent-pole" programs, such as My Kitchen Rules, were experiencing strong early demand from advertisers, according to Worner. These are the TV equivalent to an Apple device - the popular product.

Worner says: "In the shorter term, a number of macroeconomic indicators appear to be improving and we are hopeful we may see a stronger December."

It is essentially the same story. The really good stuff sells (be it retail product or content) but the market overall is variable.

The cyclical upturn that investors are buying into remains fragile. The impetus from voting in a new government is evident but has probably been overplayed.

A more meaningful recovery in true economic growth will provide the solid foundations for a cyclical recovery - something that will require a tangible change such as a sustainable devaluation of the currency.