Economic Update
Lending finance
- Lending: Total new loans (personal, business, housing & lease) fell by 0.1 per cent in July to $74.1 billion after a 1.3 per cent rise in June. New loans are down 1.1 per cent over the year – the weakest annual growth in 2½-years.
- Housing finance: Construction and new purchases rose by 2.2 per cent in July while alterations & additions rose by 0.9 per cent. Home loans are up 13.4 per cent on a year.
- Commercial finance: Business loans fell by 2.7 per cent in July. Revolving credit commitments fell by 13 per cent while fixed lending commitments fell by 0.9 per cent. Business loans are down 5 per cent over the year
The lending finance figures have implications for finance providers, retailers, and companies dependent on business spending.
What does it all mean?
- The latest lending statistics show a mild consolidation in July, although the result is not a cause for concern – especially given that lending is holding just four percent shy of the seven-year highs reached in April. The real driver of lending over the past year has been the housing sector and in that context it is investor housing that has driven the strength. However the tighter bank lending standards are starting to have an impact in terms of the housing finance data – loans for construction of new dwellings has now fallen for three consecutive months.
- It is important to realise while housing activity will continue to be the backbone of the economy over the coming year, it is starting to show signs of starting to cool – especially when it comes to irrational exuberance. If there is an anticipated pullback in home lending policymakers would be hoping that activity amongst the business sector lifts from here.
- There would be mild disappointment in the fall in business loans in July. Commercial loans are now down 5 per cent on a year ago. Business conditions are healthy, however businesses are still rather tentative about borrowing. The key driver of future lending will be an ongoing improvement in labour market conditions, rise in business hiring intentions and lift in consumer confidence.
- The Reserve Bank will dominate headlines next week with a number of releases and speeches. However the focus will be squarely on the Reserve Bank Governor, when he testifies in front of the House of Representatives Economics Committee on Friday. It will be interesting to see the Governors views when it comes to the non-mining business investment and how the housing sector is likely to evolve with the tighter lending standards. CommSec expects no change in interest rates over the next year.
What do the figures show?
Lending finance
- Total new lending commitments (housing, personal, commercial and lease finance) fell by 0.1 per cent in August to $74.1 billion after a 1.3 per cent rise in June. New loans are down 1.1 per cent over the year.
- Housing finance: The seasonally adjusted measure of construction and new purchases rose by 2.2 per cent in July while alterations & additions rose by 0.9 per cent. Home loans are up 13.4 per cent on a year.
- Commercial finance: The seasonally adjusted series for the value of total commercial finance commitments fell by 2.7 per cent in July. Revolving credit commitments fell by 13 per cent while fixed lending commitments fell by 0.9 per cent. Business loans are down 5 per cent over the year.
- Personal finance: The seasonally adjusted series for the value of total personal finance commitments fell by 2.6 per cent in July after rising by 0.9 per cent in June. Revolving credit commitments rose by 2.6 per cent and fixed lending commitments fell by 5.8 per cent. Personal loans are down 12.7 per cent over the year. Within personal fixed finance commitments, finance for used cars was down 2.3 per cent on a year earlier while loans for new cars were up by 8.8 per cent.
- Lease finance: Lending rose by 60.2 per cent in July. Lease finance rose by 68.9 per cent over the year.
What is the importance of the economic data?
- 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 for interest rates and investors?
- The Reserve Bank would be comfortable about the mix of borrowings: Aussie businesses are tentatively borrowing – in a measured way. Still, the Reserve Bank would be watching the recent drop in consumer confidence a lot more closely.
- The weaker Aussie dollar is providing solid stimulus to the economy at present and the Reserve Bank will continue to assess the impact on the economy over the next few months. CommSec expects no change to interest rates over the coming year.