Building approvals consolidate; Petrol price to ease

Dwelling approvals; TD Inflation Gauge; New Car Sales; Weekly petrol prices

• Dwelling approvals consolidate: Dwelling approvals fell by 3.5 per cent in March. Approvals are still up 20 per cent over the year. The current number of dwelling approvals (15,958) is well above the decade average (13,489).
• House approvals are up 19.1 per cent over the past year while apartment approvals are up 21.3 per cent.
• Inflation contained: The TD Securities-Melbourne Institute monthly inflation gauge rose by 0.4 per cent in April to stand 2.8 per cent higher than a year ago.
• Petrol prices ease: According to the Australian Institute of Petroleum, the national average Australian price of petrol fell by 1.4 cents per litre to 150.2 cents a litre in the week to May 4.
• Regional price slide: In Australian dollar terms the Singapore gasoline price fell by US$4.82 last week to $128.06 a barrel. Petrol prices are at the peak (high point) in the discounting cycle and should ease over the next fortnight.
• Car sales dip but record SUVs. New car sales fell by 5.2 per cent over the year to April. Over the year a record 334,385 new sports utility vehicles (SUVs or 4WDs) were sold.

What does it all mean?

• Home building has firmly taken the baton from the mining sector and looks well on its way to being a key growth driver for the Aussie economy. Despite the consolidation in the past two months building approvals are 20 per cent higher than a year ago and 18 per cent above decade averages. More importantly, the key forward indicator of residential building – private sector house approvals – are holding just shy of the best levels in four years.
• Dwelling approvals have now lifted to a rolling annual total of 188,153, well above the average of 158,000 approvals recorded since the global financial crisis. And with interest rates low, population rising and housing affordability still attractive, housing will continue to attract a fair share of interest and more importantly support an array of sectors. Interestingly in the last round of retail sales figures, hardware, building, furniture stores, and garden suppliers were already enjoying the benefits of the construction boom. In fact DIY (Do It Yourself Retailers in hardware, building and gardening) retail activity was up almost 11 per cent in February compared with a year ago – marking the strongest growth in a decade.
• The ongoing lift in housing approvals and rising new home sales, will support confidence and provide policymakers with a degree of encouragement – especially in combating excessive house prices. More homes being built over the medium term will keep a lid on aggressive house price growth. Simply, supply (construction of new homes) is lifting to meet demand, and will likely put downward pressure on prices. In short, no change in interest rate settings is required in the near term.
• Motorists have enjoyed cheaper fuel for an extended period across capital cities – Sydney, Melbourne, Brisbane, Adelaide and Perth. The low point in the discounting cycle was meant to be mid last week but it seems prices were held lower even over the weekend. Effectively fuel prices were trading at or below the wholesale price – a outcome that was not sustainable over a longer period. Fuel prices seem to have ratcheted higher today and given the fall in the global oil price, motorists would be best placed holding up from filling up the vehicle for as long as possible
• The Reserve Bank is unlikely to be overly troubled by the modest lift in inflation, particularly given that wages growth is tracking at the weakest reading in records going back 17 years. Overall inflation is likely to lift mildly over the coming year, but remain within the Central Bank’s 2-3 per cent target band. The recent appreciation of the Australian dollar will help to keep imported inflation contained over the medium term. In fact it is very likely that policymakers will modestly revise down near term inflation expectations in the Statement of Monetary Policy released on Friday. The Reserve Bank looks set to remain on the interest rate sidelines over the next few months, and look more closely at rate hikes towards year end. We expect the first rate rise to take place in the December quarter.

What do the figures show?

Building Approvals:

• Dwelling approvals fell by 3.5 per cent in March after a 5.4 per cent fall in February. Approvals are still up 20.0 per cent over the year.
• The current number of dwelling approvals (15,958) is well above the decade average (13,489) and five-year average (13,937).
• House approvals fell by 0.5 per cent in March (private sector down 0.7 per cent). Meanwhile ‘lumpy’ apartment approvals fell by 7.5 per cent in March after falling by 8.2 per cent in February.
• House approvals are up 19.1 per cent over the past year while apartments are up 21.3 per cent.
• Across states in March: NSW approvals rose by 8.0 per cent; Victoria fell by 12.5 per cent; Queensland fell by 3.3 per cent; South Australia was unchanged; Western Australia fell by 9.1 per cent; Tasmania rose  by 32.6 per cent.
• The value of all commercial and residential building approvals fell by 11.0 per cent in March after falling by 0.1 per cent in February. Residential approvals fell by 3.2 per cent with new building down 3.8 per cent and alterations & additions up 1.3 per cent. Commercial building fell by 23.3 per cent after falling by 0.4 per cent in February.

Inflation gauge

• The monthly inflation gauge rose by 0.4 per cent in April after a 0.2 per cent rise in March. The annual rate of inflation lifted from 2.7 per cent to 2.8 per cent.
• The underlying rate (trimmed mean) rose by 0.5 per cent in April. The annual rate rose from 2.7 per cent to 3.1 per cent.
• Excluding volatile items like petrol and fruit & vegetables, the inflation gauge rose by 0.7 per cent in April after a rise of just 0.3 per cent in March. The annual rate of inflation rose from 2.0 to 2.4 per cent.
• TD Securities noted that “Contributing to the overall change in April were price rises for communication (+2.6 per cent), tobacco (+2.4 per cent), and holiday travel and accommodation (+6.4 per cent). These were offset by falls in fruit and vegetables (-6.7 per cent), clothing and footwear (-2.1 per cent), and automotive fuel (-2.1 per cent). In April, the price of postal services jumped by 12.0 per cent.”

New car sales:

• According to the Federal Chamber of Automotive Industries, new car sales fell by 5.2 per cent over the year to April 2014. In April, 80,710 new vehicles were sold. And over the year to March, 1,125,142 vehicles were sold, down from the record 1,141,483 new vehicles sold on the year to July 2013.
• Passenger car sales fell 8.9 per cent over the year, sports utility vehicles rose by 4.0 per cent, other vehicles sales were unchanged. In the year to April 334,385 SUVs were sold, a record 37.3 per cent of passenger vehicle sales.

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 1.4 cents a litre to 150.2 c/l in the week to May 4. The metropolitan price fell by 1.9 c/l to 147.8 c/l, while the regional average price fell by 0.4 cents per litre to 155.2 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 3.9 cents to 144.9 c/l), Melbourne (down by 3.5 cents to 143.9 c/l), Brisbane (down by 3.8 cents to 147.9 c/l), Adelaide (up by 8.5 cents to 152.9 c/l), Perth (up by 0.6 cents to 153.3 c/l), Darwin (unchanged at 173.0 c/l), Canberra (down 0.3 cents to 157.4 c/l) and Hobart (unchanged at 160.8 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 144.0 c/l, down around 0.3 cents over the week.
• Last week the key Singapore gasoline price fell from a 10-month high down by US$4.70 to US$118.80 a barrel. In Australian dollar terms the Singapore gasoline price fell by US$4.82 or 3.6 per cent last week to $128.06 a barrel or 80.54 cents a litre.
• Figures from MotorMouth show that petrol prices in Sydney, Melbourne, Brisbane, Adelaide and Perth trended lower for an extended period (last fortnight) and have only just ratcheted higher – near the high point in the cycle. Prices are likely to ease over the next couple of weeks.
• The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.
• The TD Securities/Melbourne Institute Monthly Inflation Gauge is designed to “provide a timely and accurate monthly measure of inflation in Australia”. The Bureau of Statistics only releases the Consumer Price Index on a quarterly basis.
• The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
• Investors remain keen about putting their money to work in the housing market. Certainly there are plenty of grounds for optimism with rising population, low interest rates, government grants for new construction and tight housing markets.
• The good news is that investors aren’t just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity more generally. It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction.
• The outlook for home builders, developers and building material suppliers remains bright. But for housing-dependent businesses, conditions will vary depending on their ability to capitalise on the strength in apartment building rather than free-standing houses.
• Filling up the car with petrol is the single biggest purchase made by most families. (While the weekly grocery bill can be higher, it is made up of a raft of different items and the composition of the average shopping trolley can vary enormously from household to household.)
• The petrol price is at the high point (peak) in the discounting cycle and should ease over the next 10-14 days. Coupled with the recent fall in regional oil prices motorists would be best placed by holding off from filling up for as long as possible over the next 10 days.

What is the importance of the economic data?

• The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.
•  The TD Securities/Melbourne Institute Monthly Inflation Gauge is designed to “provide a timely and accurate monthly measure of inflation in Australia”. The Bureau of Statistics only releases the Consumer Price Index on a quarterly basis.
• The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

What are the implications for interest rates and investors?

• Investors remain keen about putting their money to work in the housing market. Certainly there are plenty of grounds for optimism with rising population, low interest rates, government grants for new construction and tight housing markets.
• The good news is that investors aren’t just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity more generally. It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction.
• The outlook for home builders, developers and building material suppliers remains bright. But for housing-dependent businesses, conditions will vary depending on their ability to capitalise on the strength in apartment building rather than free-standing houses.
• Filling up the car with petrol is the single biggest purchase made by most families. (While the weekly grocery bill can be higher, it is made up of a raft of different items and the composition of the average shopping trolley can vary enormously from household to household.)
• The petrol price is at the high point (peak) in the discounting cycle and should ease over the next 10-14 days. Coupled with the recent fall in regional oil prices motorists would be best placed by holding off from filling up for as long as possible over the next 10 days.