The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Saturday, May 21, 2011

Is the retail sector actually doing okay?

Some terrific analysis from my mate the interest rate strategist on what is really going on with retail trade (see full note here):

"This does not solve the puzzle between the increase in employment and the weakness in real retail, however I think the answer is that the monthly retail trade survey has a few bugs in it.

We can separate the retail trade survey into the Completely Enumerated sector (a population measure of large retailers) and a sample of the rest. Re-weighting the implicit price deflators, to reflect the different sales mix of the larger CE retailers and the smaller sampled retailers, we can then look at what we know for sure (the CE sector) and what we’re just guessing about (the sample).

Nominal spending growth in the CE retail sector was 1.8%q/q in Q1, and price inflation was around 0.8%q/q, leaving us with a 1%q/q real increase in retail spending. This seems more consistent with the employment data.

In the sample, we find that nominal spending fell by 0.8%q/q, with real spending down 1.3%q/q, thanks to a +0.5%q/q increase in retail price inflation.

I find the divergence in sample and CE sales a little hard to make sense of, and think that the CE data also comports better with my assessment of the broader economy – in particular it better fits the ongoing down-trend in the unemployment rate, and increase in job advertisements.

Thus, I conclude that the recent ‘weakness’ in retail sales probably has been overstated. Even if it hasn’t been overstated, wage gains and jobs growth appears to have been sustained, and the subtraction in spending power from the food and fuel tax will at least end, and probably (partially) reverse."