New low for first-time buyers; Confident businesses

Latest economic data; Chinese inflation; Weekly Petrol

• The number of new owner-occupier housing loans was largely unchanged in April but the share of first-time buyers in the market equalled the record low at 12.3 per cent of all loans. The value of investor home loans rose by 2.3 per cent to a record $11 billion in April.
• Business conditions and confidence: The NAB business confidence index rose from +6.5 points to +6.9 points in May. The business conditions index eased from +0.2 points to -0.7 points. The survey was conducted from May 26 to June 3.
• Petrol prices drop: According to the Australian Institute of Petroleum, the national average Australian price of petrol fell by 4.0 cents per litre to 151.7 cents a litre in the week to June 6. The petrol price has trended sideways over 2014.
• Hiring slips: Job advertisements fell by 5.6 per cent in May – the first fall in five months.
• Tame Chinese inflation: Producer prices fell by 1.4 per cent in the year to May (median forecast was for a 1.5 per cent decline). Consumer prices rose by 2.5 per cent over the year (median forecast 2.4 per cent).

What does it all mean?

• In contrast to the supposed angst of consumers concerning the latest Federal Budget, the business sector has taken it all in its stride. Confidence has actually edged up slightly over the past month. And now with the Budget retreating from media headlines, more focus can be placed on Australia’s good economic circumstances. Consumer confidence should lift as more realise the economy is in solid shape and interest rates are going nowhere. And more confident consumers should lead to better operating conditions for businesses.
• The national petrol price has lost relevance as an indicator of petrol price trends due to the vagaries of the discounting cycle. One week the price is up 4-5 cents, the next week it’s down 4-5 cents. The best indicator of trends is the wholesale price which has broadly trended sideways over 2014. There are no indications that petrol prices are set to move sharply higher or lower in the short term.
• At face value it appears that some of the froth has been removed from the housing market – a welcome development for all concerned. We say ‘face value’ because April readings are notoriously difficult to read given the different timing of Easter holidays. This year Easter holidays were close to ANZAC Day, leading to more people taking extended holiday breaks.
• The Chinese inflation data suggests that the economy has stabilised and in fact seems to be gaining a little strength. Inflation readings were a little stronger than expected, backing up the strong export result in the May figures released on Sunday.

What do the figures show?

National Australia Bank Business Survey:

• The NAB business confidence index rose from +6.5 points to +6.9 points in May. The business conditions index eased from +0.2 points to -0.7 points.
• The index of trading conditions weakened from +3.1 points to +1.6 points; employment weakened from +0.2 points to -0.1 points; profitability weakened from -1.7 points to -2.2 points; but forward orders improved from -5.5 points to 0.0 points.
• Inflationary pressures generally eased in May. The monthly reading of labour costs rose at a 0.6 per cent quarterly rate in May after a 0.6 per cent rise in April. Purchase costs rose at a 0.4 per cent quarterly rate in May, after a 0.6 per cent rise in April. Final product prices rose by 0.1 per cent after a 0.2 per cent rise in April. Retail prices were unchanged in May, after rising at a 0.1 per cent quarterly pace in April.
• Capacity utilisation was unchanged at 80.3 per cent in May, below the long-term average of 81.2 per cent.
• The proportion of firms reporting that they did not require credit eased from around 70 per cent in April to around 45 per cent in May.

Housing Finance:

• The number of new owner-occupier housing loans (commitments) was flat in April (actually, up by just 5 loans to 52,109). Excluding the refinancing of dwellings, loans were down by 0.3 per cent in April.
• The number of loans by owner-occupiers for the construction of homes fell by 1.1 per cent in April – only the first decline on nine months. The value of construction loans fell by 3.8 per cent in April after a 4.4 per cent increase in March.
• The number of loans by owner-occupiers to buy newly-erected dwellings fell by 1.5 per cent in April but the value of loans rose by 0.3 per cent.
• The number of loans by owner-occupiers for the purchase of established dwellings excluding refinancing was flat in April and the value of loans rose by 2.4 per cent in April after falling by 2.1 per cent in March.
• The number of refinancing transactions by owner-occupiers rose by 0.6 per cent while the value of transactions also rose by 1.6 per cent.
• The value of new housing commitments (owner occupier and investment) rose by 1.7 per cent in April with owner-occupier loans up 1.4 per cent while investment loans rose by 2.3 per cent to record highs.
• The value of loans by owner-occupiers and investors to build new homes rose from $2.42 billion to $2.56 billion in April but loans were short of the record high of $2.78 billion in February.
• The proportion of first-time buyers in the home loan market eased from 12.6 per cent to 12.3 per cent in April – equalling the record low set in November 2013 and well below the long-term average of 20.0 per cent. Fixed rate loans rose from 14.9 per cent to 15.2 per cent of all loans in April. And the average home loan across Australia stood at $323,400 in April, up 7.2 per cent on a year ago.

Job Advertisements

• Job advertisements fell by 5.6 per cent in May – the first fall in five months. While newspaper advertisements rose by 7.2 per cent in the month, internet ads fell by 6.0 per cent. In trend terms, ads rose by 0.5 per cent in May, the seventh straight gain.

Chinese inflation data

• The annual rate of consumer price inflation rose from 1.8 per cent in April to a four-month high of 2.5 per cent in May, just above forecasts centred on annual growth of 2.4 per cent. Over the month consumer prices rose by 0.1 per cent after falling 0.3 per cent in April.
• Food prices rose by 0.2 per cent in May with non-food prices up 0.1 per cent. Over the year to May, food prices rose by 4.1 per cent while non-food prices were up by 1.7 per cent.
• Food: Prices of fresh vegetables fell by 8.7 per cent in May with fruit up 2.1 per cent. Meat & poultry prices rose by 2.7 per cent with pork up 5.6 per cent, while beef prices were flat and lamb prices eased by 0.3 per cent.
• Other prices: Clothing prices rose by 0.3 per cent in May (2.5 per cent annual); tobacco & liquor prices were down 0.1 per cent (down 0.6 per cent annual); transport & communications rose 0.1 per cent (up 0.6 per cent annual); household equipment & maintenance prices were up 0.1 per cent (1.2 per cent annual); healthcare & personal products rose by 0.1 per cent (1.2 per cent annual); entertainment & educational fell by 0.1 per cent (up 2.1 per cent annual); living costs (including rents, utilities) were flat (up 2.3 per cent annual).
• Producer prices (business inflation) fell by 0.1 per cent in May – the smallest decline in four months. Producer prices in May were 1.4 per cent lower than a year ago, again the smallest annual decline in five months. Economists had tipped a 1.5 per cent annual decline.
• Mining producer prices fell by 1.0 per cent in May to be down 4.9 per cent over the year. Raw material prices fell 0.1 per cent in May (down 2.0 per cent annual); machined goods were flat (down 1.6 per cent annual). Over the year prices fell most in coal mining (down 11.7 per cent) but rose most in gas production (up 5.8 per cent).

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 4.0 cents a litre to 151.7 c/l in the week to June 8. The metropolitan price fell by 5.5 c/l to 150.1 c/l, while the regional average price fell by 0.8 cents per litre to 155.1 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 8.2 cents to 147.1 c/l), Melbourne (down by 8.8 cents to 146.8 c/l), Brisbane (down by 9.0 cents to 150.7 c/l), Adelaide (up by 9.3 cents to 157.2 c/l), Perth (up by 0.6 cents to 153.5 c/l), Darwin (unchanged at 173.0 c/l), Canberra (unchanged at 157.3 c/l) and Hobart (down by 0.1 cents to 160.7 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at a 13-day low of 143.3 c/l, down around 2.1 cents over the week. Petrol is trading below wholesale prices at Sydney pumps.
• Last week the key Singapore gasoline price fell by US$2.55 or 2.1 per cent to US$120.45 a barrel. Yesterday the Singapore gasoline price fell further to a 5-week low of US$119.30 a barrel. In Australian dollar terms the Singapore gasoline price fell by $2.92 a barrel or 2.2 per cent last week to $129.07 a barrel or 81.18 cents a litre.
• Figures from MotorMouth show that petrol prices in Sydney, Melbourne, Brisbane, Adelaide and Perth peaked (hit the high point in the cycle over the last weekend). Prices should ease over the coming week and head towards the low point early next week.
• The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
• Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
• 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.
• The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.
• The housing market remains in good shape. But Generation Y is choosing to rent rather than buy, relying on the investments of Generation X and Baby Boomers to provide the new rental housing stock.
• Anecdotally, some Generation Y are buying homes and choosing to let them while at the same time leasing properties themselves.
• The Reserve Bank doesn’t need to be in a rush to lift interest rates.
• The Chinese data is encouraging, pointing to stabilisation of the economy. Producer prices are still falling, but the rate of decline has improved. Authorities may have a little more confidence to provide targeted stimulus to the economy.

What is the importance of the economic data?

•  The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
• Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
• 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.
• The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.

What are the implications for interest rates and investors?

• The housing market remains in good shape. But Generation Y is choosing to rent rather than buy, relying on the investments of Generation X and Baby Boomers to provide the new rental housing stock.
• Anecdotally, some Generation Y are buying homes and choosing to let them while at the same time leasing properties themselves.
• The Reserve Bank doesn’t need to be in a rush to lift interest rates.
• The Chinese data is encouraging, pointing to stabilisation of the economy. Producer prices are still falling, but the rate of decline has improved. Authorities may have a little more confidence to provide targeted stimulus to the economy.