Confused signals on retail

But now the messages coming from those sectors are confused at best and gloomy at worst. While a tumble in housing starts after the introduction of the GST was all but inevitable, a plunge in retail spending was less expected and - at 8.7% in July - was too large for comfort.

Rate rises

Those figures, which came out on Friday 2 September, have already had repercussions. They were no doubt a big factor in persuading the Reserve Bank that further interest rate rises were unnecessary for the time being, but they have also contributed to the uncomfortable slide in the value of the Australian dollar.

The problem is that the results create such uncertainty. Buoyed by surveys which showed that Australian consumers were actually planning increased spending, the retail sales figures took economists by surprise.

The overall figures masked even worse results for the department stores, the turnover of which plunged 30.4%, followed by clothing and soft goods with a 27.5% fall. This softening of performance comes at a time of greater competitive threats, with the aggressive German discounter Aldi poised to move into markets for which the established players probably have little in the way of an answer.

While obviously concerned by all this, we are being very careful not to overreact. The GST - a massive change to the way this country does business - was always going to have a big distorting effect. The July figures, after all, followed a record June as people rushed to beat price increases as a result of the GST.

While we will not be certain for some time yet, we are inclined to believe that July's slump may have been the result of simple exhaustion. Having spent so much in June, shoppers simply didn't have the slack on their credit cards to return to the stores in July.

If that's the case, it is good news for the wider economy if not for the retailers themselves. Mind you, you'd never know the industry had problems from the share prices of the major retailers, which rose overall by 8% in August. While the July sales figures brought these prices back a bit (with the notable exception of Woolworths) they maintained most of their gains.

This is largely due to how oversold these shares had been. We have repeatedly expressed our amazement at the levels to which Coles Myer in particular had fallen.