High-rise Australia; Job ads up again

Inflation gauge, Building approvals, Job Ads; Weekly petrol price

• Hiring lifts: Job advertisements rose by 2.3 per cent in April – the 10th gain in 11 months.
• Record dwelling approvals: Dwelling approvals rose by 2.8 per cent to record highs in March. In trend terms, for the first time there were more apartment approvals than houses.
• Inflation: The TD Securities-Melbourne Institute monthly inflation gauge was up 0.3 per cent in March to be up 1.4 per cent over the year. The trimmed mean measure was up 1.4 per cent over the year.
• Petrol prices: According to the Australian Institute of Petroleum, the national average Australian price of petrol rose by 1.0 cents per litre last week to 133.6 cents per litre.

What does it all mean?

• For the first time there are more approvals to build new apartments (in trend terms) than free-standing houses. And 1-in-4 new dwellings approved are in an apartment block of four storeys or more. Australian society is fundamentally changing in ways that have major implications for business and government planning.
• Inflation is well contained. All the key measures from the TD Securities/Melbourne Institute monthly inflation report show prices up 1.4 per cent over the year – well below the Reserve Bank’s 2-3 per cent target band. The Reserve Bank can cut rates without fears of inflation exceeding the target band over the next year.
• Motorists have seen the best levels for petrol prices. But while the cost of petrol has lifted from lows, the world is still well supplied with oil, reducing fears of a significant rebound in pump prices in the near term. The Singapore gasoline price and Australian wholesale price have lifted around 7-8 cents a litre but the national retail price has only lifted 3.5 cents, so motorists can expect further pain at the pump.
• The latest economic data is encouraging: more jobs are being advertised and a record number of dwelling approvals have been recorded. Now is the hard part. Does the Reserve Bank leave rates unchanged on the hope that the economy has turned the corner? Or does the Reserve Bank cut rates and provide a helping to the gathering momentum? We favour the latter. But the RBA needs to say that this is the last rate cut – at least for a while.

What do the figures show?

Petrol price:

• According to the Australian Institute of Petroleum, the national average Australian price of petrol rose by 1.0 cents per litre to 133.6 cents per litre in the week to May 3. The metropolitan petrol price rose by 1.0 cents to 133.8 cents per litre and the regional price rose by 0.9 cents to 133.2 cents per litre.
• The national average Australian price of diesel petrol rose by 0.3 cents to 131.6 c/l in the week to May 3. Last week the metropolitan price rose by 0.2 cents to 130.4 c/l, while the regional average price rose by 0.3 cents to 132.5 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down 6.3 cents to 129.8 c/l), Melbourne (up by 9.0 cents to 136.4c/l), Brisbane (up by 1.8 cents to 138.8 c/l), Adelaide (down by 5.8 cents to 127.6 c/l), Perth (up by 1.6 cents to 132.0 c/l), Darwin (down by 0.3 cents to 135.7 c/l), Canberra (flat at 133.4 c/l) and Hobart (up by 0.4 cent to 137.0 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 125.7 cents a litre, up by 2.1 cents a litre on a week ago and the highest level in six months.
• Last week the key Singapore gasoline price rose by US45c or 0.6 per cent to a 6-month high of US$82.00 a barrel. Singapore gasoline previously hit a near 6-year low (lowest since March 2009) of US$52.20 a barrel on January 13. In Australian dollar terms the Singapore gasoline price fell by $1.09 a barrel or 1.0 per cent last week to $103.76 a barrel or 65.26 cents a litre. In Australian dollar terms, the Singapore gasoline price has lifted by A22 cents from the mid-January lows.
• Figures from MotorMouth show pump prices drifted lower in Sydney, Melbourne, Brisbane and Adelaide over the past week. The discounting cycle has probably ended (prices are at lows) in Sydney and Adelaide.

Job Advertisements

• Job advertisements rose by 2.3 per cent in April after falling by 1.3 per cent in March. Job ads have risen in 10 of the last 11 months. Newspaper advertisements fell by 2.5 per cent in the month, but the far larger component of internet ads rose by 2.4 per cent. Job ads are up 7.3 per cent on a year ago. In trend terms, ads rose by 0.4 per cent in the month, the 18th straight gain.

Building Approvals:

• Dwelling approvals rose by 2.8 per cent to record highs in March. In trend terms, approvals rose by 1.8 per cent – the 10th straight gain.
• House approvals rose by 0.5 per cent in March (private sector up 1.1 per cent). Meanwhile ‘lumpy’ apartment approvals rose by 5.3 per cent in March (private sector up 5.3 per cent).
• In trend terms dwelling approvals are up 18.2 per cent on a year ago with house approvals up 0.3 per cent while apartments are up by 43.6 per cent.
• Across states in March: NSW approvals fell by 3.7 per cent; Victoria fell by 6.0 per cent; Queensland rose by 8.1 per cent; South Australia rose by 35.2 per cent; Western Australia rose by 18.9 per cent; Tasmania rose by 42.3 per cent. In trend terms, approvals fell 14.6 per cent in the Northern Territory and fell 3.8 per cent in the ACT.
• The value of all commercial and residential building approvals rose by 6.2 per cent in March after falling by 18.1 per cent in February. Residential approvals rose by 5.6 per cent with new building up by 6.9 per cent and alterations & additions fell by 5.0 per cent. Commercial building rose by 8.0 per cent in March.
• In trend terms, the value of all commercial and residential building approvals was up 0.9 per cent in March – the ninth straight gain.

Inflation gauge

• The monthly inflation gauge was up 0.3 per cent in April after a 0.4 per cent increase in March. The annual rate of inflation fell from 1.5 per cent to 1.4 per cent.
• Tradable good prices rose by 0.7 cent over the year to April, up from 0.1 per cent. And the annual growth rate ofnon-tradable inflation eased from 2.5 per cent to 1.8 per cent – the lowest rate in over a decade.
• The underlying rate (trimmed mean) rose by 0.2 per cent in April after a flat result in March. The annual rate eased from 1.6 per cent to 1.4 per cent.
• Excluding volatile items like petrol and fruit & vegetables, the inflation gauge rose by 0.3 per cent in April after falling 0.2 per cent in March. The annual rate of inflation eased from 1.9 per cent to 1.4 per cent.
• TD Securities noted that: “Contributing to the overall change in April were price rises for medical, dental and hospital services (+4.7 per cent), holiday travel and accommodation (+3.1 per cent) and automotive fuel (+0.8 per cent). These were offset by falls in alcoholic beverages (-0.7 per cent), garments (-0.7 per cent), and audio, visual and computing equipment and services (-2.2 per cent). The price of fruit and vegetables fell by 0.5 per cent in April.”

What is the importance of the economic data?

• 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.
• 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.

What are the implications for interest rates and investors?

• Before the dwelling approvals and job ads data were released, the chance of a rate cut was put at 80 per cent. Now financial markets put the rate cut chances at 77 per cent. It is good news that businesses are looking to hire staff. And it is good news that building activity is set to rise further in coming months. But with inflation well contained, the Reserve Bank can give the economy a helping hand with another (the last?) interest rate cut.
• In the next 12-18 months a record amount of new dwellings will come onto the market, serving to restrain growth of established home prices. Sydney and Melbourne home prices are hot now, but it may be a different question in 2016.
• In trend terms for the first time there were more council approvals to build apartments in March than free-standing houses. This is a pivotal moment for the home building sector – tradespeople need to ensure that they have a skill set to take on a broader range of projects.