Private sector credit; Export/import prices; China data
- Lending: Private sector credit (effectively outstanding loans) rose by 1.1 per cent in March after rising by 0.4 per cent in February. Annual credit growth rose from 2.7 per cent to 3.6 per cent. Business credit rose by 2.9 per cent in March – the biggest monthly gain in 32 years.
- Deposits: According to the Australian Prudential Regulation Authority (APRA), resident deposits soared by over $110 billion or 5.2 per cent in March reflecting the term funding stimulus measure.
- Export & import prices: Import prices fell by 1.0 per cent in the March quarter but prices were still up 0.9 per cent on a year ago. Export prices rose by 2.7 cent in the quarter to be up 2.3 per cent on the year. The terms of trade rose by around 3.5 per cent in the quarter.
- Chinese services still growing: The official China Purchasing Manager’s Indexes show manufacturing fell from 52.0 points to 50.8 points in April (consensus: 51.0 points) but services rose from 52.3 points to 53.2 points (consensus: 52.5 points). The Caixin manufacturing index fell from 50.1 to 49.4. Any reading above 50 denotes an expansion in activity.
- US Federal Reserve: The US Federal Reserve left its federal funds target rate at 0-0.25 per cent as expected.
Private sector credit figures have implications for finance providers, retailers, and companies dependent on business spending. The terms of trade data is useful in assessing the outlook for the Australian dollar and therefore trade-exposed businesses.
What does it all mean?
- The stimulus dollars are flowing. In fact business credit (or outstanding loans) lifted by almost 3 per cent or around $30 billion in March – the biggest gain in 32 years. The lift in lending is around 10 months of ‘normal’ lending. Banks have more to lend with the term funding facility totalling at least $90 billion.
- Aussie financial intuitions are ready to lend even more. Financial institution deposits soared by over $110 billion in March or around 5 per cent, reflecting the early days of the operation of the Reserve Bank’s stimulus measures.
- While businesses are taking up loans, Aussie households are steering clear of debt. Non-housing personal lending fell 1.4 per cent in March – the biggest fall since the global financial crisis.
What do the figures show?
Private sector credit: March 2020
- Private sector credit (effectively outstanding loans) rose by 1.1 per cent in March to be up 3.6 per cent on the year – the strongest annual growth rate in 11 months.
- Housing credit grew by 0.3 per cent in March. And the annual growth rate held steady at 3.1 per cent.
- Owner-occupier housing credit rose by 0.5 per cent to stand 5.2 per cent higher over the year (10-month high).
- Investor housing finance fell 0.1 per cent to be a record 0.4 per cent down from a year ago.
- Personal credit fell by 1.4 per cent in March (the biggest fall in 11 years). Credit was 6.5 cent lower over the year – the biggest annual decline in almost 11 years (May 2009).
- Business credit rose by 2.9 per cent – the biggest rise in 32 years. Business credit was up 6.3 per cent over the year (biggest rise since June 2016).
- The M3 money aggregate lifted by 2.6 per cent to be up 6.1 per cent from a year ago.
- Broad Money rose by 2.7 per cent to be up 6.3 per cent from a year ago.
- Loans and advances by banks grew by 4.5 per cent in the year to March – the biggest rise in 13 months. Loans by all financial institutions were up by 6.3 per cent – a 38-month high.
- According to APRA, resident deposits held at Authorised Deposit-taking Institutions rose by $110.27 billion in March or 5.2 per cent. Deposits from financial institutions rose by almost $65 billion with deposits by companies up $30 billion, household deposits up near $10 billion and government deposits up almost $6 billion.
- Loans to households via credit cards fell from $37.38 billion to $36.35 billion in March. Credit card lending is down by 8.9 per cent over the year.
Import prices
- The Bureau of Statistics (ABS) reported that import prices fell 1.0 per cent in the March quarter but prices were still up 0.9 per cent over the year.
The ABS said:
“Main contributors are:
- “Petroleum, petroleum products and related materials (-11.1 per cent), due to decreased global demand as countries began to shut down and put major transport restrictions in place, in an attempt to stop the spread of COVID-19.
- Inorganic chemicals (-11.8 per cent), driven by a fall in demand for sodium hydroxide, an input into a number of manufacturing processes.”
- Road vehicles (including air-cushion vehicles) (-0.6 per cent), due to a continuing decrease in global demand.”
These falls were partially offset by rises in:
- “Gold, non-monetary (excluding gold ores and concentrates) (+11.2 per cent), due to increased demand for the safe-haven commodity as a result of global economic uncertainty.
- Telecommunications and sound recording and reproducing apparatus and equipment (+1.6 per cent), driven by the introduction of new phone models.”
- Six of the ten broad import categories recorded price increases in the March quarter.
Export prices
- Export prices rose by 2.7 per cent in the March quarter to be up 2.3 per cent over the year.
The ABS said:
“Main contributors are:
- “Gold, non-monetary (excluding gold ores and concentrates) (+11.4 per cent), due to increased demand for the safe-haven commodity as a result of global economic uncertainty.
- Metalliferous ores and metal scrap (+2.3 per cent), due to constrained global supply. The extended Chinese New year shutdown and wide-reaching transport restrictions prompted a stronger reliance on imported iron ore to the mainly coastal based steel mills
- Gas, natural and manufactured (+4.3 per cent), due to rises in crude oil prices in the December quarter 2019 flowing through to LNG contract prices.
- Meat and meat preparations (+4.0 per cent), due to strong global demand for alternative proteins, as a result of the continuing effects of African Swine Fever.”
These rises were partially offset by falls in:
- “Petroleum, petroleum products and related materials (-7.8 per cent), due to decreased global demand as countries began to shut down and put major transport restrictions in place, in an attempt to stop the spread of COVID-19.
- Non-ferrous metals (-2.8 per cent), due to manufacturing shutdowns and increasing economic uncertainty slowing demand.”
- Nine of the ten broad export categories recorded price increases in the March quarter.
- The ratio of export prices to import prices (a proxy for the terms of trade) rose by 3.8 per cent in the March quarter after falling by 5.9 per cent in the December quarter.
What is the importance of the economic data?
- Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.
- The Australian Prudential Regulation Authority (APRA) provides data from Authorised deposit-taking institutions on a monthly basis. The data highlights trends in deposits and loans in the economy.
- The Australian Bureau of Statistics (ABS) provides quarterly estimates of export and import prices. The figures assist in gauging inflationary pressures in the economy.
- China’s National Bureau of Statistics releases results of its surveys of purchasing managers near the end of the month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.
What are the implications for investors?
- Businesses have started to embrace the cheap funding that is available. For many firms this is about survival. For others, it is a prudent strategy to get through the virus crisis. There is no shortage of funding available with the stimulus measures provided by the Federal Government and Reserve Bank vital to ensure that the economy rebounds quickly and powerfully.
- Services activity in China is lifting as people try to restore some normalcy in their lives. But manufacturing is constrained due to weakness in economic activity in major advanced economies. Still China is on the way back – an encouraging sign for Australian businesses given that almost 40 per cent of our exports go to China.