Building approvals; Business indicators; Balance of Payments; Government finance
- What happened: Total council approvals to build new houses rose by 3.4 per cent to record highs.
- Implications: Demand for building materials will continue to soar. But not all the projects may be built if the workers can’t be found.
- Other data of note: The current account surplus hit a record high of $18.3 billion in the March quarter. Company operating profits fell 0.3 per cent in the quarter. Wages & salaries (includes changes in wages and employment) rose 2.0 per cent in the quarter to be up 2.7 per cent on the year.
The balance of payments data has implications for trade-exposed businesses and companies vulnerable to changes in the Aussie dollar. The government spending data is an input to the calculation of economic growth. The building approvals data has implications for banks, retailers, developers, building and building material companies. Business indicators data provides a guide to how industry sectors are faring – including data on profits, sales, inventories and wages.
What does it all mean?
- The National Accounts is released tomorrow. This report contains the estimate for economic growth in the March quarter (gross domestic product or GDP). The data should show the economy growing by 2 per cent in quarter and by 1.1 per cent on the year. The bottom-line being that the economy has clawed back all the ground lost through the pandemic and is again higher than a year ago. If confirmed, such a result would provide a boost to consumer and business sentiment.
- But to a large extent the GDP data is ancient history. Other data out today covered the months of April and May. The important point being that the solid economic recovery continues – despite new virus lockdowns or the threat of lockdowns.
- Will all the houses be built? Anecdotes indicate that cost pressures continue to build and that labourers and skilled tradespeople are increasingly hard to find. If builders in the ‘hot’ areas can’t find workers they may have to lift wages significantly or seek special approval from the Federal Government to bring in workers from abroad. And that may mean paying the costs of airfares, quarantine costs and accommodation of foreign workers.
What do you need to know?
Building approvals – April
- Council approvals to build new homes fell by 8.6 per cent in April after rising by 18.9 per cent in March. Approvals are still up 39.2 per cent on the year.
- In April, total houses rose by 3.4 per cent (up 66.0 per cent on the year) with apartments down 28.6 per cent (up 0.4 per cent on the year).
- Over the past year 140,222 new houses were approved – the most for a 12-month period in 32 years.
Business indicators – March quarter
- Company operating profits fell by 0.3 per cent in the March quarter but were still up 11.9 per cent on the year. Profits rose in only 5 of the 15 industry groups in the March quarter.
- Inventories rose by 2.1 per cent in the March quarter. Inventories will add 0.8 percentage points to GDP growth.
- The total real value of sales rose by 2.5 per cent in the March quarter (up 0.9 per cent on the year). In current prices, sales rose by 4.8 per cent in the quarter and rose 2.6 per cent on the year.
- Wages & salaries (includes changes in wages and employment) rose 2.0 per cent in the quarter to be up 2.7 per cent on the year – reflecting modest growth in wages and higher employment.
Balance of Payments – March quarter
- The current account surplus rose by $2.3 billion to a record $18.3 billion in the quarter.
- Exports of goods and services rose 0.5 per cent in real terms in the quarter (goods up 2 per cent) with imports up 3.7 per cent (goods up 3.3 per cent). Net exports are expected to detract 0.6 percentage points from GDP in the March quarter.
- The terms of trade on goods and services for the March quarter rose by 7.4 per cent to 114.7, with an increase of 6.5 per cent in export prices and a decrease of 0.9 per cent in import prices.
- Australia’s net foreign debt fell by $23.2 billion to $1,138.9 billion.
- The debt servicing ratio (net income on foreign debt, ratio to goods and services) fell from 3.1 per cent to 3.0 per cent in the March quarter – a 41-year low.
Government finances – March quarter
- General government final consumption expenditure fell 0.5 per cent in the quarter and will trim 0.1 percentage points from the change in GDP in the March quarter.
- General government gross fixed capital formation increased by 4.6 per cent in the quarter and is expected to contribute 0.2 percentage points to the change in GDP in the March quarter.
What is the importance of the economic data?
- The quarterly Business Indicators publication by the Bureau of Statistics contains measures such as inventories, company profits and income from sales. Higher inventory (stock) levels can be either intentional or unintentional. If stocks are low and sales are expected to rise in the future, businesses will seek to build up stocks. However an unintentional build-up in stocks is where sales fall short of expectations, leaving more goods on the shelves than desired. If profits are increasing then this may point to increased capital spending and employment in the future. Rising profits are also a sign of favourable business conditions.
- 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 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.