DEEP cuts in interest rates appear to be finally gaining traction with consumers, raising hopes of a long-awaited retail recovery in the crucial run-up to Christmas.
Shoppers are feeling more confident than at any point since April last year, according to Westpac’s index of consumer sentiment, which jumped by a surprising 5.2 per cent this month.
The rise, which comes amid the continuing malaise in the retail industry, suggests the 1 percentage point reduction in official interest rates this year has lifted households’ spirits, and could point to stronger spending over summer.
With the property and sharemarkets also showing tentative signs of life recently, some analysts predict better times ahead for the ailing retail industry.
”I think retail is going to get some support at Christmas from the fact that interest rates are lower and there has been employment growth in the last few months,” the chief economist at HSBC, Paul Bloxham, said.
While the sector was unlikely to return to the boom era it enjoyed before the global financial crisis, Mr Bloxham argued lower rates were also stimulating a recovery in housing, after back-to-back rises in building approvals.
”When people build houses they need to start filling them up with things, and those durable goods are bought from retailers,” he said.
The chief executive of retail conglomerate Wesfarmers, Richard Goyder, also said its flagship businesses Coles, Target and Bunnings, had experienced growth during the
first quarter. ”We are hopeful of a positive trading outcome in the retail businesses during the important Christmas period,” Mr Goyder said. The lift in sentiment comes after a bleak couple of years for discretionary retailers, with the collapse of consumer confidence, coupled with historically high savings, decimated sales and crunched earnings.
But despite the improvement, business confidence and the labour market remain soft. This was underlined by Australian Bureau of Statistics figures that showed wage growth slowed to 0.7 per cent in the September quarter, from 1 per cent.
JPMorgan economist Ben Jarman said he was sceptical of the lift in sentiment, which could be overshadowed by continuing pessimism among businesses, which appear reluctant to hire more staff.
”I don’t think a few months of better consumer data is going to cause the retail sector to turn around,” he said. In a further sign of slowing in the resources boom, wage growth in mining was just 0.5 per cent, the second-slowest after finance, where wages rose 0.5 per cent.
Retailers such as the leading stores Myer and David Jones have been forced to rub out their profit forecasts and replace them with more subdued outlooks.
Harvey Norman posted a 32 per cent dive in its full-year net profit for 2011-12 as price deflation, especially in the TV category, saw revenue slide and margins shrink. JB Hi-Fi, once a market darling, posted a 5 per cent drop in its full-year net profit.
But in November, 56.2 per cent of those surveyed felt it was a good time to buy major household items, the highest proportion since September 2011.
The share of households who felt their finances had improved compared with a year ago, 26 per cent, was the highest since August 2010.
Investor attention will now turn to the imminent release of first-quarter sales performances from Myer and David Jones, with the department store owners to shed more light on their expectations for the crucial Christmas trading period.
This story Administrator ready to work first appeared on Nanjing Night Net.