Building Approvals; Consumer confidence; China PMI
- Dwelling approvals rose by 3.7 per cent in March to be down 6.5 per cent on a year ago. In trend terms, approvals rose for the third consecutive month, up by 0.6 per cent.
- House approvals rose by 2.4 per cent in March, while lumpy’ apartment approvals rose by 5.1 per cent.
- Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating rose by 2.2 points (2 per cent) to 113.9 in the week to May 1. Confidence is up 2 per cent over the year and above the average of 112.1 since 2014. Four of the five components of the index rose in the latest week
- Chinese economic data: The Chinese manufacturing purchasing managers index eased from 49.7 to 49.4 in April. Any readings above 50 indicate expanding activity.
What does it all mean?
- The housing sector continues to bubble along at a healthy pace. Home prices remain resilient despite changes in regulation and tighter lending standards that have been adopted by the banking sector. More importantly the pipeline of new building will continue to support broader-based economic growth over the coming 12-18 months.
- Over the past year 232,180 new homes were approved, easing further from the record high 239,821 in the year to October 2015. The anticipated lift in housing supply should ensure a more balanced environment – in essence house price growth is likely to be more contained over the medium term.
- The housing sector has dropped off the Reserve Bank’s list of concerns. Rather the focus for policymakers is attempting to navigate a low inflationary environment and support non-mining business investment. No doubt the Aussie dollar will remain in focus given the recent volatility.
- Looking forward, it is likely that activity levels will remain subdued over the next few months with households and businesses digesting policy outcomes from the Federal Budget and the potential timing of an early election. Importantly, household balance sheets remain in good shape. And more importantly the strength in employment over the past year has eased concerns about job security. However the lack of income growth is an issue that could weigh on activity over the longer term.
- The Chinese manufacturing gauge continues to suggest a consolidation in activity. China is Australia’s largest trading partner by a large margin. And China is attempting to rebalance activity away from construction, manufacturing and mining to service sectors like retailing, financial services, hotels and food services. And that rebalancing will continue to come with mixed results.
What do the figures show?
Building Approvals:
- Dwelling approvals rose by 3.7 per cent in March after rising by 2.9 per cent in February and falling by 3.8 per cent in January. In trend terms, approvals rose for the third consecutive month, up by 0.6 per cent.
- Over the past year 232,180 new homes were approved, easing further from the record high 239,821 in the year to October 2015.
- House approvals rose by 2.4 per cent in March after a 0.7 per cent rise in February (private sector rose by 2.6 per cent). Meanwhile ‘lumpy’ apartment approvals rose by 5.1 per cent in March after rising by 5.2 per cent in February. Private sector apartment approvals rose by 6.7 per cent in March.
- Dwelling approvals in March were down 6.5 per cent on a year ago with house approvals down by 0.8 per cent while apartments are down by 11.8 per cent.
- Across states and territories in March: NSW (+14.4 per cent); Victoria (-12.8 per cent); Queensland (+9.5 per cent); South Australia (-10.8 per cent); Western Australia (-7.7 per cent); Tasmania (+24.0 per cent). In trend terms, approvals fell by 9.7 per cent in the Northern Territory but rose by 4.9 per cent in the ACT.
The value of all commercial and residential building approvals fell by 2 per cent in March after rising by 5.8 per cent in February. Residential approvals rose by 2 per cent with new building up by 3 per cent while alterations & additions fell by 5.9 per cent. Commercial building fell by 11.2 per cent in March to be down 10.7 per cent on a year ago.
Consumer confidence
- The weekly ANZ/Roy Morgan consumer confidence rating rose by 2.2 points (2 per cent) to 113.9 in the week to May 1. Confidence is up 2 per cent over the year and above the average of 112.1 since 2014. Four of the five components of the index rose in the latest week:
- The estimate of family finances compared with a year ago was up from +4 to +6;
- The estimate of family finances over the next year was down from +28 to +27;
- Economic conditions over the next 12 months was up from -6 to -2;
- Economic conditions over the next 5 years was up from +3 to +7;
- The measure of whether it was a good time to buy a major household item was up from +30 points to +32 points.
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 ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
What are the implications for interest rates and investors?
- While new council approvals to build new homes appear to have peaked, activity levels are still healthy. But now investors and builders need to do more research to ensure that the projects they are interested in remain viable with competing projects. There is certainly potential for indigestion in certain towns and regions as new projects are completed and the stock is absorbed
- From a household balance sheet perspective the outlook for retailers looks healthy. Lower petrol prices, firm confidence levels, solid home construction and healthy employment should all serve to boost spending levels. However the uncertainty over the timing of an early Federal election will weigh on activity over the short term.
- The Reserve Bank will closely monitor developments in China and financial markets more generally. Encouragingly the Reserve Bank has plenty of firepower to provide stimulus to the economy.