AdviserVoicebalance of payments Archives - AdviserVoice https://www.adviservoice.com.au/tag/balance-of-payments/ Financial planner information & financial planner education/CPD - AdviserVoice Wed, 22 Jul 2026 20:20:18 +0000 en-US hourly 1 https://wordpress.org/?v=7.0.2 Building approvals at record highs https://www.adviservoice.com.au/2014/03/building-approvals-record-highs/ https://www.adviservoice.com.au/2014/03/building-approvals-record-highs/#respond Tue, 04 Mar 2014 20:50:34 +0000 https://adviservoice.com.au/?p=28554

Dwelling approvals; Balance of Payments; Government Finance

  • Building approvals up in January.

    Building approvals up in January.

    Dwelling approvals soar: Dwelling approvals rose by 6.8 per cent in January. Approvals are up 34.6 per cent over the year. Approvals rose to 17,104 in February – a record high and well above the decade average of 13,408.

  • The all-important reading on private sector house approvals rose by 8.3 per cent in January to near four-year high, while ‘lumpy’ apartment approvals rose by 4.7 per cent.
  • Trade sector adds to economic growth: Net exports (exports less imports) will add 0.6 percentage points to economic growth in the December quarter. The terms of trade (ratio of export prices to import prices) rose by 0.7 per cent in the December quarter. The current account deficit narrowed from $12,539 billion to $10,139 million.
  • More assets overseas: For the first time on record, the value of assets Australians own overseas exceeds the amount of assets owned by foreign investors in Australia.
  • CommSec estimates that the economy grew by 0.8 per cent in the December quarter to be up 2.7 per cent over the year.

What does it all mean?

  • The recovery in new home building is nothing short of sensational. Building approvals are now 27 per cent above decade averages, and are at record highs. It is pretty clear that housing construction will be a strong driver of the Australian economy over the coming year. More importantly, the key forward indicator of residential building – private sector house approvals – surged by over 8 per cent in January and is just shy of the best levels in four years.
  • The latest data confirms that the housing sector is the shining light of the Australian economy. And with interest rates low, population rising and housing affordability still attractive, housing looks well placed to fill the void left by the pullback in mining investment. In fact the latest result will help ease Reserve Bank concerns when it comes to the disappointing planned business investment data released last week. Interestingly, dwelling approvals have now lifted to a rolling annual total of 182,000, well above the average of 158,000 approvals recorded since the global financial crisis.
  • The ongoing lift in housing approvals and rising new home sales, will support confidence and provide policymakers with a degree of encouragement – especially in combating excessive house prices. More homes being built over the medium term will keep a lid on aggressive house price growth. Simply, supply (construction of new homes) is lifting to meet demand, and will likely put downward pressure on prices. In short, no change in interest rate settings is required in the near term.
  • The ongoing current account deficit and record foreign debt increase Australia’s vulnerability to shocks and support calls for a lower Aussie dollar. However, the good news is that export receipts continue to lift, although debt serviceability deteriorated for the third straight quarter from the best levels in 30 years.
  • For the first time (ever?) Australians own more foreign assets than foreigners own here in Australia. Certainly the high Aussie dollar is a key factor causing Aussie consumers, businesses and fund managers to diversify their asset holdings.

What do the figures show?

Building Approvals:

  • Dwelling approvals rose by 6.8 per cent in January after a 1.3 per cent fall in December. Approvals are up 34.6 per cent over the year.
  • The current number of dwelling approvals (17,514) is well above the decade average (13,472) and five-year average (13,757).
  • House approvals rose by 8.6 per cent in January (private sector up 8.3 per cent). Meanwhile ‘lumpy’ apartment approvals rose by 4.7 per cent in January after falling by 0.9 per cent in December.
  • House approvals are up 26.1 per cent over the past year while apartments are up 46.3 per cent.
  • Across states in January: NSW approvals rose by 5.4 per cent; Victoria rose 10.4 per cent; Queensland rose 1.2 per cent; South Australia rose 10.5 per cent; Western Australia rose 5.6 per cent; Tasmania rose 10.5 per cent.
  • The value of all commercial and residential building approvals fell by 3.8 per cent in January after rising by 3.1 per cent in December. Residential approvals fell by 1.4 per cent with new building down 2.1 per cent and alterations & additions up 4.5 per cent. Commercial building fell by 7.2 per cent after rising by 9.0 per cent in January.

Balance of Payments

  • The broadest measure of Australia’s external position – the current account – improved in the December quarter (smaller deficit). The current account deficit narrowed from $12,539 million to $10,139 million in the quarter. The balance of goods and services was in surplus by $247 million after a $2,672 million deficit in the December quarter.
  • For the first time, Australians own more assets overseas than foreign investors own here in Australia. At the start of the December quarter, net foreign equity in Australia was $27 billion. But transactions reduced foreign equity by $5 billion; price changes cut foreign equity by $18 billion; exchange rate changes reduced the total by $21.5 billion; and other changes cut the total by $5.6 billion. At the end of the December quarter, net foreign equity was negative $23.1 billion.
  • In the December quarter exports of goods and services rose by 3.2 per cent in current price terms with volumes up by 2.4 per cent and prices up 0.8 per cent. Imports of goods and services fell by 0.4 per cent in current prices with volumes down by 0.6 per cent while prices rose by 0.2 per cent.
  • The trade sector (exports less imports) will add 0.6 percentage points to economic growth in the December quarter.
  • The terms of trade (ratio of export prices to import prices) rose by 0.7 per cent in the December quarter after a 3.1 per cent fall in the September quarter.
  • Net foreign debt rose by $34.3 billion to a record $852.9 billion in the December quarter.
  • The debt servicing ratio (net income on foreign debt to goods and services credits) lifted again (worsened) from the 30-year low of 6.4 per cent in the March quarter 2013 to 7.3 per cent in the December quarter. It was the third straight quarter that the servicing ratio has deteriorated.

Government Finances

  • Government consumption spending rose by 0.3 per cent in the December quarter after rising by 1.0 per cent in the September quarter. And total public investment lifted by 4.3 per cent in the December quarter after soaring by 39.6 per cent in the September quarter. Overall, spending by the government sector rose by 1.2 per cent in the December quarter after lifting by 7.2 per cent in the September quarter.
  • 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 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.
  • Investors remain keen about putting their money to work in the housing market. Certainly there are plenty of grounds for optimism with rising population, low interest rates, government grants for new construction and tight housing markets.
  • The good news is that investors aren’t just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity more generally. It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction.
  • The outlook for home builders, developers and building material suppliers continues to brighten. But for housing-dependent businesses, conditions will vary depending on their ability to capitalise on the strength in apartment building rather than free-standing houses.

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 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.

What are the implications for interest rates and investors?

  • Investors remain keen about putting their money to work in the housing market. Certainly there are plenty of grounds for optimism with rising population, low interest rates, government grants for new construction and tight housing markets.
  • The good news is that investors aren’t just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity more generally. It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction.
  • The outlook for home builders, developers and building material suppliers continues to brighten. But for housing-dependent businesses, conditions will vary depending on their ability to capitalise on the strength in apartment building rather than free-standing houses.
]]>

Dwelling approvals; Balance of Payments; Government Finance

  • Building approvals up in January.

    Building approvals up in January.

    Dwelling approvals soar: Dwelling approvals rose by 6.8 per cent in January. Approvals are up 34.6 per cent over the year. Approvals rose to 17,104 in February – a record high and well above the decade average of 13,408.

  • The all-important reading on private sector house approvals rose by 8.3 per cent in January to near four-year high, while ‘lumpy’ apartment approvals rose by 4.7 per cent.
  • Trade sector adds to economic growth: Net exports (exports less imports) will add 0.6 percentage points to economic growth in the December quarter. The terms of trade (ratio of export prices to import prices) rose by 0.7 per cent in the December quarter. The current account deficit narrowed from $12,539 billion to $10,139 million.
  • More assets overseas: For the first time on record, the value of assets Australians own overseas exceeds the amount of assets owned by foreign investors in Australia.
  • CommSec estimates that the economy grew by 0.8 per cent in the December quarter to be up 2.7 per cent over the year.

What does it all mean?

  • The recovery in new home building is nothing short of sensational. Building approvals are now 27 per cent above decade averages, and are at record highs. It is pretty clear that housing construction will be a strong driver of the Australian economy over the coming year. More importantly, the key forward indicator of residential building – private sector house approvals – surged by over 8 per cent in January and is just shy of the best levels in four years.
  • The latest data confirms that the housing sector is the shining light of the Australian economy. And with interest rates low, population rising and housing affordability still attractive, housing looks well placed to fill the void left by the pullback in mining investment. In fact the latest result will help ease Reserve Bank concerns when it comes to the disappointing planned business investment data released last week. Interestingly, dwelling approvals have now lifted to a rolling annual total of 182,000, well above the average of 158,000 approvals recorded since the global financial crisis.
  • The ongoing lift in housing approvals and rising new home sales, will support confidence and provide policymakers with a degree of encouragement – especially in combating excessive house prices. More homes being built over the medium term will keep a lid on aggressive house price growth. Simply, supply (construction of new homes) is lifting to meet demand, and will likely put downward pressure on prices. In short, no change in interest rate settings is required in the near term.
  • The ongoing current account deficit and record foreign debt increase Australia’s vulnerability to shocks and support calls for a lower Aussie dollar. However, the good news is that export receipts continue to lift, although debt serviceability deteriorated for the third straight quarter from the best levels in 30 years.
  • For the first time (ever?) Australians own more foreign assets than foreigners own here in Australia. Certainly the high Aussie dollar is a key factor causing Aussie consumers, businesses and fund managers to diversify their asset holdings.

What do the figures show?

Building Approvals:

  • Dwelling approvals rose by 6.8 per cent in January after a 1.3 per cent fall in December. Approvals are up 34.6 per cent over the year.
  • The current number of dwelling approvals (17,514) is well above the decade average (13,472) and five-year average (13,757).
  • House approvals rose by 8.6 per cent in January (private sector up 8.3 per cent). Meanwhile ‘lumpy’ apartment approvals rose by 4.7 per cent in January after falling by 0.9 per cent in December.
  • House approvals are up 26.1 per cent over the past year while apartments are up 46.3 per cent.
  • Across states in January: NSW approvals rose by 5.4 per cent; Victoria rose 10.4 per cent; Queensland rose 1.2 per cent; South Australia rose 10.5 per cent; Western Australia rose 5.6 per cent; Tasmania rose 10.5 per cent.
  • The value of all commercial and residential building approvals fell by 3.8 per cent in January after rising by 3.1 per cent in December. Residential approvals fell by 1.4 per cent with new building down 2.1 per cent and alterations & additions up 4.5 per cent. Commercial building fell by 7.2 per cent after rising by 9.0 per cent in January.

Balance of Payments

  • The broadest measure of Australia’s external position – the current account – improved in the December quarter (smaller deficit). The current account deficit narrowed from $12,539 million to $10,139 million in the quarter. The balance of goods and services was in surplus by $247 million after a $2,672 million deficit in the December quarter.
  • For the first time, Australians own more assets overseas than foreign investors own here in Australia. At the start of the December quarter, net foreign equity in Australia was $27 billion. But transactions reduced foreign equity by $5 billion; price changes cut foreign equity by $18 billion; exchange rate changes reduced the total by $21.5 billion; and other changes cut the total by $5.6 billion. At the end of the December quarter, net foreign equity was negative $23.1 billion.
  • In the December quarter exports of goods and services rose by 3.2 per cent in current price terms with volumes up by 2.4 per cent and prices up 0.8 per cent. Imports of goods and services fell by 0.4 per cent in current prices with volumes down by 0.6 per cent while prices rose by 0.2 per cent.
  • The trade sector (exports less imports) will add 0.6 percentage points to economic growth in the December quarter.
  • The terms of trade (ratio of export prices to import prices) rose by 0.7 per cent in the December quarter after a 3.1 per cent fall in the September quarter.
  • Net foreign debt rose by $34.3 billion to a record $852.9 billion in the December quarter.
  • The debt servicing ratio (net income on foreign debt to goods and services credits) lifted again (worsened) from the 30-year low of 6.4 per cent in the March quarter 2013 to 7.3 per cent in the December quarter. It was the third straight quarter that the servicing ratio has deteriorated.

Government Finances

  • Government consumption spending rose by 0.3 per cent in the December quarter after rising by 1.0 per cent in the September quarter. And total public investment lifted by 4.3 per cent in the December quarter after soaring by 39.6 per cent in the September quarter. Overall, spending by the government sector rose by 1.2 per cent in the December quarter after lifting by 7.2 per cent in the September quarter.
  • 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 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.
  • Investors remain keen about putting their money to work in the housing market. Certainly there are plenty of grounds for optimism with rising population, low interest rates, government grants for new construction and tight housing markets.
  • The good news is that investors aren’t just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity more generally. It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction.
  • The outlook for home builders, developers and building material suppliers continues to brighten. But for housing-dependent businesses, conditions will vary depending on their ability to capitalise on the strength in apartment building rather than free-standing houses.

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 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.

What are the implications for interest rates and investors?

  • Investors remain keen about putting their money to work in the housing market. Certainly there are plenty of grounds for optimism with rising population, low interest rates, government grants for new construction and tight housing markets.
  • The good news is that investors aren’t just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity more generally. It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction.
  • The outlook for home builders, developers and building material suppliers continues to brighten. But for housing-dependent businesses, conditions will vary depending on their ability to capitalise on the strength in apartment building rather than free-standing houses.

The post Building approvals at record highs appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2014/03/building-approvals-record-highs/feed/ 0 Still no joy for retailers; Record foreign debt https://www.adviservoice.com.au/2013/09/still-no-joy-for-retailers-record-foreign-debt/ https://www.adviservoice.com.au/2013/09/still-no-joy-for-retailers-record-foreign-debt/#respond Tue, 03 Sep 2013 21:40:16 +0000 https://adviservoice.com.au/?p=24637

Retail Trade; Balance of Payments; Government Finance

retail-250

Retail trade rose in July.

Retail trade rose by just 0.1 per cent in July after a flat result in June. Annual spending growth rose from 1.1 per cent to 1.9 per cent. However over the past five months spending growth is running at an annualised rate of -1.2 per cent.

Non-food retailing fell by 0.3 per cent in July after a flat result in June. Non-food retail spending is up by a paltry 0.5 per cent on a year ago.

Sales by chain-store retailers and other large retailers fell by 0.2 per cent in July and were up 2.9 per cent on a year ago.

Trade sector detracts marginally from economic growth: Net exports (exports less imports) will detract 0.04 percentage points from economic growth in the June quarter. The terms of trade (ratio of export prices to import prices) rose by 0.2 per cent in the June quarter. The current account deficit worsened from $8.74 billion to $9.35 billion in the quarter.

Record foreign debt, but debt servicing improves: Net foreign debt rose by $23.1 billion in the June quarter to a record $762.2 billion. External debt represents 50.8 per cent of GDP – a three year high. The debt servicing ratio (net income on foreign debt to goods and services credits) lifted from a 30-year low of 6.0 per cent to 6.2 per cent in the June quarter.

CommSec estimates that the economy grew by 0.6 per cent in the June quarter to be up 2.5 per cent over the year.

What does it all mean?

  • The latest monthly retail sales data certainly paints a disappointing picture of the domestic consumer landscape. Not only did overall retail activity barely grow in July, but the all-important category of discretionary (non-food) spending fell by 0.3 per cent in July and rose by just 0.5 per cent over the year – below the rate of inflation. Whichever way you cut it, the results highlight the tough trading environment being faced by businesses.
  • The election, warm winter weather and absence of price growth are the three fundamental restraints on the value of retail spending.
  • As we travel across the country the overwhelming feedback is that Australian households and businesses are waiting for the election to be done and dusted so people can get on with life. Arguably not too much is likely to change across the economy until after the election.
  • There are credible signs that the multiple rate cuts provided over the past few months are starting to have a more pronounced impact on the broader economy. The low interest rate environment is ensuring household budgets are looking a lot more attractive; however the decision by consumers to hold off on spending would be concerning the Reserve Bank. Especially when you consider that over the past five months retail activity has actually gone backwards by 0.5 per cent.
  • The surprising weakness in the July result was the near 8 per cent slide in department store sales. Interestingly the warmer weather may have played a part in the retail weakness with less spending on heaters, blankets and other seasonal items.
  • It seems that consumers are being enticed to spend only if deep discounts are on offer. However given the recent falls in the Australian dollar, retailers may not be able to discount to the same extent. And even if significant discounting was to take place to get rid of excess stock, the results don’t bode well for retailers with activity skewed towards lower-margin transactions.
  • The changes and shifts in technology are certainly playing a significant part in where consumers allocate discretionary spending. Spending on newspapers and books are certainly on the outer with growth slumping by almost 18 per cent over the past year.
  • Over the next couple of months the Reserve Bank is likely to consider the need for a further rate cut. However there are plenty of signs in housing and equity markets that activity levels are improving. The concern is that the improvement is taking place from a low base. The uncertainty surrounding further fiscal tightening measures by the government and the upcoming election are more temporary negative influence on confidence. The key is how the economy – particularly the business sector – reacts to the post-election environment

What do the figures show?

Retail trade

  • Retail trade rose by 0.1 per cent in July after flat result in June. Annual spending growth lifted from 1.1 per cent to 1.9 per cent. However over the past five months spending growth is running at an annualised -1.2 per cent
  • Non-food retailing fell by 0.3 per cent in July after a flat result in June. Non-food retail spending is up by a paltry 0.5 per cent on a year ago. Sales by chain-store retailers and other large retailers fell by 0.2 per cent in July and were up 2.9 per cent on a year ago.
  • The biggest gain in spending in July occurred at “Hardware, building and garden suppliers” (up 2.9 per cent); followed by “Electrical and electronic retailing” (up 2.7 per cent).
  • The biggest drop in the month occurred at “Department stores” (down 7.9 per cent) followed by by “Newspaper and book retailing”, down 2.5 per cent.
  • Sales rose in five of the eight states and territories, led by the Northern Territory (up 3.1 per cent), and followed by South Australia (up 1.6 per cent), Tasmania (up 1.5 per cent), the ACT (up 0.3 per cent) and Victoria (up 0.2 per cent). Sales fell the most in Western Australia (down 0.7 per cent), followed by Queensland (down 0.2 per cent), and NSW (down 0.1 per cent).

Balance of Payments

  • The broadest measure of Australia’s external position – the current account – deteriorated in the June quarter. The current account deficit worsened from $8.74 billion to $9.35 billion in the quarter. The balance of goods and services was in deficit by just $18 million after a $122 million surplus in the March quarter.
  • The quarterly current account deficit weakened from 2.3 per cent of GDP to 2.5 per cent of GDP in the June quarter.
  • In the June quarter exports of goods and services rose by 2.1 per cent in current price terms with volumes up by 1.3 per cent and prices up 0.8 per cent. Imports of goods and services rose by 2.3 per cent in current prices with volumes up by 1.6 per cent while prices rose by 0.7 per cent.
  • The trade sector (exports less imports) will detract 0.04 percentage points from economic growth in the June quarter.
  • The terms of trade (ratio of export prices to import prices) rose by 0.2 per cent in the June quarter after rising by 3.0 per cent in the March quarter.
  • Net foreign debt rose by $23.1 billion to $762.2 billion in the June quarter. Net foreign debt lifted from 49.3 per cent of GDP to a three-year high of 50.8 per cent of GDP.
  • The debt servicing ratio (net income on foreign debt to goods and services credits) lifted (worsened) from a 30-year low of 6.0 per cent to 6.2 per cent in the June quarter.

Government Finances

  • Government consumption spending rose by 0.8 per cent in the June quarter after rising by 0.7 per cent in the March quarter. But total public investment slumped by 28.7 per cent in the June quarter after dropping by 16.4 per cent in the March quarter. Overall, spending by the government sector fell by 5.6 per cent in the June quarter after falling by 3.6 per cent in the March quarter.
    • The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
    • 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. Trade has been a drag on economic growth over the past four years with a lack of productive capacity holding back exports while rising incomes have boosted imports.
    • While it is yet to show up in the retail statistics, it is safe to assume that spending will pick up over the medium term. Households are flush with cash and the low interest environment, healthy house prices and stronger sharemarkets should support spending.
    • The substantial rate cuts over the past year are garnering traction across the economy. The improvement in housing activity coupled with healthy population growth should underpin an improvement in retail activity over the medium term.
    • The external accounts have no implications for interest rates. However the data has implications for the currency and the strength in debt servicing ratio supports the currency as does the lift in the terms of trade.
    • CommSec expects the Reserve Bank to stay on the interest rate side-lines over the next couple of months. The key is how the labour market reacts over the next six months. A sizeable lift in unemployment would likely cause the Reserve Bank to cut rates once more before year end.

What is the importance of the economic data?

  • The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
  • 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. Trade has been a drag on economic growth over the past four years with a lack of productive capacity holding back exports while rising incomes have boosted imports.

What are the implications for interest rates and investors?

  • While it is yet to show up in the retail statistics, it is safe to assume that spending will pick up over the medium term. Households are flush with cash and the low interest environment, healthy house prices and stronger sharemarkets should support spending.
  • The substantial rate cuts over the past year are garnering traction across the economy. The improvement in housing activity coupled with healthy population growth should underpin an improvement in retail activity over the medium term.
  • The external accounts have no implications for interest rates. However the data has implications for the currency and the strength in debt servicing ratio supports the currency as does the lift in the terms of trade.
  • CommSec expects the Reserve Bank to stay on the interest rate side-lines over the next couple of months. The key is how the labour market reacts over the next six months. A sizeable lift in unemployment would likely cause the Reserve Bank to cut rates once more before year end.
]]>

Retail Trade; Balance of Payments; Government Finance

retail-250

Retail trade rose in July.

Retail trade rose by just 0.1 per cent in July after a flat result in June. Annual spending growth rose from 1.1 per cent to 1.9 per cent. However over the past five months spending growth is running at an annualised rate of -1.2 per cent.

Non-food retailing fell by 0.3 per cent in July after a flat result in June. Non-food retail spending is up by a paltry 0.5 per cent on a year ago.

Sales by chain-store retailers and other large retailers fell by 0.2 per cent in July and were up 2.9 per cent on a year ago.

Trade sector detracts marginally from economic growth: Net exports (exports less imports) will detract 0.04 percentage points from economic growth in the June quarter. The terms of trade (ratio of export prices to import prices) rose by 0.2 per cent in the June quarter. The current account deficit worsened from $8.74 billion to $9.35 billion in the quarter.

Record foreign debt, but debt servicing improves: Net foreign debt rose by $23.1 billion in the June quarter to a record $762.2 billion. External debt represents 50.8 per cent of GDP – a three year high. The debt servicing ratio (net income on foreign debt to goods and services credits) lifted from a 30-year low of 6.0 per cent to 6.2 per cent in the June quarter.

CommSec estimates that the economy grew by 0.6 per cent in the June quarter to be up 2.5 per cent over the year.

What does it all mean?

  • The latest monthly retail sales data certainly paints a disappointing picture of the domestic consumer landscape. Not only did overall retail activity barely grow in July, but the all-important category of discretionary (non-food) spending fell by 0.3 per cent in July and rose by just 0.5 per cent over the year – below the rate of inflation. Whichever way you cut it, the results highlight the tough trading environment being faced by businesses.
  • The election, warm winter weather and absence of price growth are the three fundamental restraints on the value of retail spending.
  • As we travel across the country the overwhelming feedback is that Australian households and businesses are waiting for the election to be done and dusted so people can get on with life. Arguably not too much is likely to change across the economy until after the election.
  • There are credible signs that the multiple rate cuts provided over the past few months are starting to have a more pronounced impact on the broader economy. The low interest rate environment is ensuring household budgets are looking a lot more attractive; however the decision by consumers to hold off on spending would be concerning the Reserve Bank. Especially when you consider that over the past five months retail activity has actually gone backwards by 0.5 per cent.
  • The surprising weakness in the July result was the near 8 per cent slide in department store sales. Interestingly the warmer weather may have played a part in the retail weakness with less spending on heaters, blankets and other seasonal items.
  • It seems that consumers are being enticed to spend only if deep discounts are on offer. However given the recent falls in the Australian dollar, retailers may not be able to discount to the same extent. And even if significant discounting was to take place to get rid of excess stock, the results don’t bode well for retailers with activity skewed towards lower-margin transactions.
  • The changes and shifts in technology are certainly playing a significant part in where consumers allocate discretionary spending. Spending on newspapers and books are certainly on the outer with growth slumping by almost 18 per cent over the past year.
  • Over the next couple of months the Reserve Bank is likely to consider the need for a further rate cut. However there are plenty of signs in housing and equity markets that activity levels are improving. The concern is that the improvement is taking place from a low base. The uncertainty surrounding further fiscal tightening measures by the government and the upcoming election are more temporary negative influence on confidence. The key is how the economy – particularly the business sector – reacts to the post-election environment

What do the figures show?

Retail trade

  • Retail trade rose by 0.1 per cent in July after flat result in June. Annual spending growth lifted from 1.1 per cent to 1.9 per cent. However over the past five months spending growth is running at an annualised -1.2 per cent
  • Non-food retailing fell by 0.3 per cent in July after a flat result in June. Non-food retail spending is up by a paltry 0.5 per cent on a year ago. Sales by chain-store retailers and other large retailers fell by 0.2 per cent in July and were up 2.9 per cent on a year ago.
  • The biggest gain in spending in July occurred at “Hardware, building and garden suppliers” (up 2.9 per cent); followed by “Electrical and electronic retailing” (up 2.7 per cent).
  • The biggest drop in the month occurred at “Department stores” (down 7.9 per cent) followed by by “Newspaper and book retailing”, down 2.5 per cent.
  • Sales rose in five of the eight states and territories, led by the Northern Territory (up 3.1 per cent), and followed by South Australia (up 1.6 per cent), Tasmania (up 1.5 per cent), the ACT (up 0.3 per cent) and Victoria (up 0.2 per cent). Sales fell the most in Western Australia (down 0.7 per cent), followed by Queensland (down 0.2 per cent), and NSW (down 0.1 per cent).

Balance of Payments

  • The broadest measure of Australia’s external position – the current account – deteriorated in the June quarter. The current account deficit worsened from $8.74 billion to $9.35 billion in the quarter. The balance of goods and services was in deficit by just $18 million after a $122 million surplus in the March quarter.
  • The quarterly current account deficit weakened from 2.3 per cent of GDP to 2.5 per cent of GDP in the June quarter.
  • In the June quarter exports of goods and services rose by 2.1 per cent in current price terms with volumes up by 1.3 per cent and prices up 0.8 per cent. Imports of goods and services rose by 2.3 per cent in current prices with volumes up by 1.6 per cent while prices rose by 0.7 per cent.
  • The trade sector (exports less imports) will detract 0.04 percentage points from economic growth in the June quarter.
  • The terms of trade (ratio of export prices to import prices) rose by 0.2 per cent in the June quarter after rising by 3.0 per cent in the March quarter.
  • Net foreign debt rose by $23.1 billion to $762.2 billion in the June quarter. Net foreign debt lifted from 49.3 per cent of GDP to a three-year high of 50.8 per cent of GDP.
  • The debt servicing ratio (net income on foreign debt to goods and services credits) lifted (worsened) from a 30-year low of 6.0 per cent to 6.2 per cent in the June quarter.

Government Finances

  • Government consumption spending rose by 0.8 per cent in the June quarter after rising by 0.7 per cent in the March quarter. But total public investment slumped by 28.7 per cent in the June quarter after dropping by 16.4 per cent in the March quarter. Overall, spending by the government sector fell by 5.6 per cent in the June quarter after falling by 3.6 per cent in the March quarter.
    • The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
    • 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. Trade has been a drag on economic growth over the past four years with a lack of productive capacity holding back exports while rising incomes have boosted imports.
    • While it is yet to show up in the retail statistics, it is safe to assume that spending will pick up over the medium term. Households are flush with cash and the low interest environment, healthy house prices and stronger sharemarkets should support spending.
    • The substantial rate cuts over the past year are garnering traction across the economy. The improvement in housing activity coupled with healthy population growth should underpin an improvement in retail activity over the medium term.
    • The external accounts have no implications for interest rates. However the data has implications for the currency and the strength in debt servicing ratio supports the currency as does the lift in the terms of trade.
    • CommSec expects the Reserve Bank to stay on the interest rate side-lines over the next couple of months. The key is how the labour market reacts over the next six months. A sizeable lift in unemployment would likely cause the Reserve Bank to cut rates once more before year end.

What is the importance of the economic data?

  • The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
  • 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. Trade has been a drag on economic growth over the past four years with a lack of productive capacity holding back exports while rising incomes have boosted imports.

What are the implications for interest rates and investors?

  • While it is yet to show up in the retail statistics, it is safe to assume that spending will pick up over the medium term. Households are flush with cash and the low interest environment, healthy house prices and stronger sharemarkets should support spending.
  • The substantial rate cuts over the past year are garnering traction across the economy. The improvement in housing activity coupled with healthy population growth should underpin an improvement in retail activity over the medium term.
  • The external accounts have no implications for interest rates. However the data has implications for the currency and the strength in debt servicing ratio supports the currency as does the lift in the terms of trade.
  • CommSec expects the Reserve Bank to stay on the interest rate side-lines over the next couple of months. The key is how the labour market reacts over the next six months. A sizeable lift in unemployment would likely cause the Reserve Bank to cut rates once more before year end.

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