Government Finance; Balance of Payments; Consumer Sentiment; Car sales
- Current Account: The broadest measure of the trade accounts – the current account – deteriorated in the June quarter (bigger deficit), with the deficit lifting from $4.75 billion to $9.56 billion.
- Stronger trade sector: Net exports (exports less imports) will add 0.3 percentage points to economic growth in the June quarter. Commonwealth Bank group economists estimate that the economy grew by 0.9 per cent in the June quarter (3.6 per cent annualised) to be up 2.0 per cent over the year.
- Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.5 per cent in the latest week after a sharp 3.9 per cent rise in the previous week.
- Government sector: Overall, spending by the government sector rose by 3.4 per cent in the June quarter after rising 0.4 per cent in the March quarter.
- Vehicle sales: According to the Federal Chamber of Automotive Industries (FCAI), new motor vehicle sales totalled 96,662 in August, up 1.8 per cent on a year ago and a record for the August month.
The balance of payments data has implications for trade-exposed businesses and companies vulnerable to changes in the Aussie dollar. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
What does it all mean?
- The economy remains in good shape and the latest data continues to vindicate the optimism of the Reserve Bank. Net exports (exports less imports) boosted economic growth in the June quarter together with household and government spending and private and public investment. The economy may have grown 0.9 per cent in the June quarter. If the result is annualised in the same way as in the US, then this translates to growth of 3.6 per cent over the year.
- While much of the export focus is on iron ore and coal, rural exports have been quietly lifting to fresh highs over the last few quarters. The good economic times are being experienced across the nation.
- Consumer confidence also continues to lift with the stronger economic times and is back above longer-term averages. And consumers are buying more new sports utility vehicles and utes with new vehicle sales in August the highest for an August month. A record 1.18 million new vehicles have been sold over the past year.
- The latest data should translate to a more upbeat Reserve Bank but interest rates hikes are still some way off with inflation contained.
What do the figures show?
Balance of Payments
- The broadest measure of the trade accounts – the current account – deteriorated in the June quarter (bigger deficit), with the deficit lifting from $4.75 billion to $9.56 billion. The December quarter 2016 deficit of $3.56 billion was the smallest in 15 years.
- The balance of goods and services was in surplus by $3.07 billion in the June quarter after a $7.4 billion surplus in the March quarter.
- In real terms exports rose by 2.7 per cent in the June quarter (goods up 3.1 per cent) with imports up by 1.2 per cent (goods up 1.4 per cent). Export prices fell by 5.4 per cent in the quarter with import prices up 0.6 per cent.
- Metal ores and minerals export volumes rose by 2.2 per cent in the June quarter with coal exports down by 6.8 per cent, metals up 21.6 per cent and mineral fuels up 10.4 per cent. Gold exports were up 9.6 per cent. But cereal grain volumes fell by 0.9 per cent with meat export volumes down 5.5 per cent.
- The trade sector (exports less imports) will add 0.3 percentage points to economic growth in the June quarter.
- Terms of trade (ratio of export to import prices) fell by 6.0 cent from a 3-year high to 103.6 in the June quarter. The terms of trade for goods fell by 6.9 per cent and the terms of trade for services fell by 2.0 per cent.
- Net foreign debt fell from $1,011.8 billion to $990.6 billion as at the end of the June quarter.
Government Finances
- Government consumption spending rose by 1.2 per cent in the June quarter after a 1.0 per cent rise in the March quarter. Total public investment soared by 11.9 per cent in the June quarter after falling by 2.1 per cent in the March quarter. Overall, spending by the government sector rose by 3.4 per cent in the June quarter after rising 0.4 per cent in the March quarter.
Consumer sentiment
- The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.5 per cent to 114.1 after rising 3.9 per cent in the prior week. Confidence is down 0.2 per cent over the year but above the average of 113.2 since 2014.
- Three of the five components of the index fell in the latest week:
- The estimate of family finances compared with a year ago was down from +7 to +5;
- The estimate of family finances over the next year was down from +24 to +22;
- Economic conditions over the next 12 months was up from -1 to +2;
- Economic conditions over the next 5 years was up from zero to +6;
- The measure of whether it was a good time to buy a major household item was down from +37 to +36.
New vehicle sales
- According to the Federal Chamber of Automotive Industries (FCAI), new motor vehicle sales totalled units 96,662 in August, up 1.8 per cent on a year ago and a record for an August month.
- Passenger vehicles in August were down 8.2 per cent on a year earlier while sales of sports utility vehicles (SUVs) were up by 4.7 per cent and other vehicles were up by 16.6 per cent.
- In the year to August, SUVs represented a record 49.6 per cent of combined passenger car and SUV sales. SUVs accounted for a record 38.6 per cent of all vehicle sales.
- FCAI notes: “Every state and territory except Tasmania increased sales over August 2016. The ACT showed the strongest growth at 9.4 per cent, followed by Western Australia with a 4.2 per cent increase, Queensland (+3.5%), Northern Territory (+2.6%), Victoria (+1.7), NSW (+1.1%) and South Australia (+0.1%).
- “Sales to private buyers during August provided impetus for the month’s good outcome.
- “Private SUV sales rose by 7.6 per cent however, the big gain was in private light commercial sales, which rose 23.4 per cent. Light commercial sales to business also provided a useful boost with a 12.8 per cent increase over August 2016. Across the market, private sales rose by 3.7 per cent.”
- “Toyota had a market-leading share during August of 19.2 per cent, followed by Mazda with 8.8 per cent, Hyundai (8.1%), Holden (7.2%), Ford (6.9%) and Mitsubishi (6.9%).”
- “The Toyota Hilux remained the country’s best-selling vehicle during August with 4,287 sales, followed by the Ford Ranger with 3,588, the Toyota Corolla in third place with 2,948, the Hyundai Tucson (2,206) and the Mazda3 (2,163).”
What is the importance of the economic data?
- The quarterly Balance of Payments figures have few short-term effects on financial markets. The importance of the data is merely to highlight Australia’s trading position with the rest of the world as well as the contribution of foreign trade (exports less imports) to the latest estimates of economic growth.
- The Australian Bureau of Statistics releases the quarterly Government Finance Statistics near the start of March, June, September and December. The data details public sector consumption and investment spending and indicates the sector’s contribution to economic growth.
- 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.
- 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.
What are the implications for interest rates and investors?
- Interest rates will remain on hold over the rest of 2017. The next move in interest rates is up, but debate on the timing of the rate increase can wait until 2018.
- There is solid evidence that consumers, business and governments are all spending. And with wages and profits both up sharply in the June quarter, there is solid justification for the increase in purchases.