What does it all mean?

• The green shoots that have been prevalent across the economy are showing signs of starting to blossom. Not only have new finance commitments lifted for ten out of the past 12 months, but new lending has recorded solid gains over the past three months and is holding at the best levels in six years. The low interest rate environment, and more importantly the perception of lower rates over the medium term, is fostering a healthier appetite for borrowings.
• The lending finance data tends to be a good forward looking indicator on the economy, given that if borrowings increase, spending should pick up over the next few months. In that context the improvement in lending should further support gains for broad-based spending and overall economic activity.
• It is still early days, and consumers and business are still relatively cautious. And while the economic recovery is still in its infancy, it was encouraging to see that the lift in lending was broad-based. Business and home lending were lifting at a robust pace, while personal borrowings were also showing a healthy improvement.
• Importantly the employment data out yesterday, while questionable should ease some of the concerns about significant weakness in the labour market landscape. In fact it should support consumer and business confidence and that should in turn ensure broader economic activity remains sound.
• The Reserve Bank would have to be pleased at the way the economic recovery is panning out. The housing recovery continues to gather momentum, while rising wealth levels is supporting confidence and in turn spending. In addition the lower Australian dollar should provide a boost to exports in coming months and help to alleviate the risks surrounding the rebalancing of the economy. The key area of concern is likely to be how quickly the labour market recovers. As such we expect the Reserve Bank to maintain a neutral stance over the next few months. Cash rates have likely bottomed but we still don’t expect the first lift in rates until late in the year.

What do the figures show?

Lending Finance:

• Total new lending commitments (housing, personal, commercial and lease finance) rose by 1.7 per cent in January after rising by 2.6 per cent in November. Lending totalled $65.9 billion – a six year high. Lending is up by 28.3 per cent on a year ago. In trend terms lending has risen for 16 straight months, with annual trend growth up 25.0 per cent on a year ago.
• Housing finance: The seasonally adjusted measure of construction and new purchases rose by 1.5 per cent in January while alterations & additions fell by 2.0 per cent. Home loans are up 18.3 per cent on a year ago.
• Commercial finance: The seasonally adjusted series for the value of total commercial finance commitments rose by 2.1 per cent in January, following a rise of 5.5 per cent in December. Revolving credit commitments lifted by 1.6 per cent, after a rise of 12.1 per cent in the previous month. Fixed lending commitments rose by 2.2 per cent, following a rise of 3.5 per cent in the previous month. Business loans are up 40.2 per cent over the year.
• Personal finance: The seasonally adjusted series for the value of total personal finance commitments rose 0.6 per cent. Revolving credit commitments rose 1.3 per cent and fixed lending commitments rose 0.1 per cent. Lending is up 5.3 per cent over the year.
• In terms of fixed personal loans car loans were down 1.9 per cent on a year ago. However lending to buy land was up 25.1 per cent while refinancing was up 21.8 per cent on a year ago.
• Lease finance: The seasonally adjusted series rose 4.3 per cent, following a rise of 0.2 per cent in December. Lending is down 18.8 per cent over the year.
• Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.
• The main game for the Reserve Bank is the changing of the baton of economic growth drivers from mining to other sectors of the economy. In particular the RBA will be closely assessing borrowing behaviour, especially the desire to take on more risk. In that regard there are signs that the risk profile of investors, businesses and savers has shifted in recent months.
• The Reserve Bank has retired to the sidelines. We believe that it will be reluctant to cut rates again unless global or domestic factors unexpectedly weaken. There are signs that confidence levels are healthy; the housing market is strengthening; and the labour market may improve in coming months. The Reserve Bank would be hopeful that the economy continues to strengthen in coming months, underpinned by super-low interest rates and momentum provided by home construction and sales. CommSec expects no change in policy settings in the next few months.

Why is the data important?

• Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.

What are the implications?

• The main game for the Reserve Bank is the changing of the baton of economic growth drivers from mining to other sectors of the economy. In particular the RBA will be closely assessing borrowing behaviour, especially the desire to take on more risk. In that regard there are signs that the risk profile of investors, businesses and savers has shifted in recent months.
• The Reserve Bank has retired to the sidelines. We believe that it will be reluctant to cut rates again unless global or domestic factors unexpectedly weaken. There are signs that confidence levels are healthy; the housing market is strengthening; and the labour market may improve in coming months. The Reserve Bank would be hopeful that the economy continues to strengthen in coming months, underpinned by super-low interest rates and momentum provided by home construction and sales. CommSec expects no change in policy settings in the next few months.