Just a minor lift in Aussie dwelling prices.

Australian dwelling prices took a breather in September after posting solid rises over the previous three months.  The small 0.1% increase means that prices are now 18.8% above the May 2012 trough and exceed the previous peak in October 2010 by 10.0%.  Annual growth has eased from a peak of 11.5% in April 2014.

Australia’s two largest cities, Sydney and Melbourne, have been driving the lift in national house prices.  Dwelling prices in Sydney rose by 0.8% in September while they fell by the same amount in Melbourne.  Prices rises in Sydney have shown no sign of slowing and are being fuelled largely by investor interest.  In Melbourne, however, dwelling price momentum has cooled largely in response to a lift in supply.  The forward looking indicators suggest that a lift in supply is forthcoming in Sydney.

Low interest rates and the expectation of future capital gains mean that investors in Australia are currently the major driver of the property market.  Lending to investors has risen substantially over the past year.  One consequence is that rental growth is likely to be weak as the proportion of dwellings available for lease lifts.

Policy makers have been showing increasing signs of concern at the investor driven property price surge.  Last week, the RBA published its semi‑annual Financial Stability Review (FSR) which echoed concerns in the September Board minutes around increased leverage on house price speculation.   The Bank has revealed it is in discussion with APRA and others about what steps “might be taken to reinforce sound lending practices”.  The debate about macroprudential policy has taken off as a result.

The RBA will front the Senate’s economics committee tomorrow for a special hearing on Thursday to explain the risks associated with the housing boom and the potential for macroprudential policy to be introduced.  We will be watching that space closely.

From a rates perspective, the rhetoric from the RBA around house prices has taken any further cuts right off the table and together with other factors will ultimately put rate hikes onto the agenda.

Table 1: RP Data‑Rismark Dwelling* Prices, September 2014

*All dwellings, median price.**Values are for houses only up to August

Click here to read the report.

The post House prices take a breather over September appeared first on AdviserVoice.

Labour market is weak: CBA Economics

Real wages growth will remain low while the labour market is weak.  Real household disposable income growth will continue to run at a below‑average pace and therefore act as a headwind to consumer spending.

• A run down in the savings ratio, rising wealth positions, a lower Aussie dollar redirecting retail spending onshore and more appetite for household borrowing are needed to drive momentum in consumer spending.
• We expect consumer spending growth of around 2.5% and 3.0% in 2014/15 and 2015/16 respectively.  This compares to the ten‑year average of 3.0%.

The outlook for household consumption has been a key area of uncertainty over recent months.  Retail outcomes have been mixed and consumer sentiment remains fragile.  The concern for the RBA is determining if the waning in consumption growth momentum will be a lasting issue, particularly if households have reassessed expected economic conditions to be worse than previously anticipated.  A return to more “average” consumer spending outcomes is one of the forecast components of the mining to non‑mining growth transition.  The RBA expect consumer spending growth to improve considerably by 2016 because of an increase in household wealth and moderate income growth.

Wages growth is currently running at the slowest level for 16 years and real wages are declining.  If real wages growth is negative, what will drive momentum in consumer spending growth?

Our forecasts for moderate consumer spending growth are based on the assumption that:

1.  There will be some run‑down in the savings ratio
2.  Household balance sheets will remain in good shape
3.  A lower Australian dollar will redirect some retail spending onshore
4.  Consumer borrowing growth will fund additional spending

The risk from weak income growth

Changes in household disposable income growth are a key factor in determining potential changes in consumer spending.  The importance of income growth to household spending means that it is normal for consumer spending and household disposable income growth to run in similar cyclical patterns.

Click here to read the full report.

The post What is needed to drive consumer spending? appeared first on AdviserVoice.

Labour market conditions had remained subdued: RBA Board

The September RBA Board Minutes look a little dated. The RBA Board meeting preceded the recent data batch which showed that the Australian economy is travelling along better than what the RBA has assumed in its growth forecasts. And the recent slide in the AUD, if maintained, means that the RBA is likely to upgrade its growth and inflation forecasts.

The Minutes are “neutral” in their outlook for monetary policy, as they have been this year. But concerns change over time. One way to assess the evolution in the Board’s thinking on considerations for policy is to look at what has changed in the narrative from the previous month’s minutes.  And on that score, the Bank has some growing concerns around house price growth. The Minutes note that, “policy also needed to be cognisant of the risks to future growth that could accompany a large further build‑up in asset prices, particularly if that was associated with an increase in leverage.”  Indeed, a decent chunk of the Minutes are attempts to jawbone the housing market.

Stevens just recently stressed that the RBA has done as much as they can in creating a backdrop that should support economic growth¹.  Stevens all but ruled out any further rate cuts by stating that “further inflating an already elevated level of house prices seems an unwise route (to reduce unemployment)”.  House price data for August showed that prices surged again in Sydney and Melbourne over the month. And the most recent loan data showed that investor loans are around their highest share on record of total loans.

On the labour market, the Board stated that “labour market conditions had remained subdued” and that “forecasts of a period of below‑trend growth in economic activity meant that it would be some time before the unemployment rate declined consistently”. The most recent jobs figures (published after the September meeting) recorded a huge 121k spike in employment and a large 0.3ppt fall in the unemployment rate to 6.1%.  Cutting through the monthly noise shows that trend employment growth is running at 20k on a three‑month basis. Employment growth around this level is in line with a flat unemployment rate. And coupled with the positive leading indicators suggests that the RBA is, in our view, being overly pessimistic in its assessment of the jobs market. The risk is that the unemployment rate starts to decline ahead of the RBA’s expectations.

There was very little from the Bank on inflation given the SMP was published last month just after the QII CPI.  Nonetheless, we note that the softer AUD, if sustained, is likely to mean that inflation runs ahead of RBA forecasts (the latest RBA forecasts used an AUD worth 93 US cents).

The good economic data reads since the last RBA meeting, coupled with the slide in the AUD, has seen market pricing for a further rate cut wane substantially. We have been arguing for some time that market pricing was overstating downside risks to the growth and inflation outlooks. Our base case has the RBA on hold until Q1 2015 where we have pencilled in a rate hike.

———-

¹“The Economic Scene” – Glenn Stevens address to a CEDA Luncheon, Adelaide 3 September 2014

The post RBA Board Minutes – September 2014 appeared first on AdviserVoice.

• The Governor’s opening statement forecast that growth of 2‑3%pa is the most likely outcome for 2014/15 and inflation to remain consistent with the 2% to 3% target.
• Economic growth could be higher but there are significant forces restraining activity.
• There are signs of a pick‑up in non‑mining investment but investment intentions are mixed and dependent on the domestic growth outlook. Australians have become more risk averse since the GFC.
• The unemployment rate could stay near present levels and not fall significantly until 2016.
• The AUD remains high because of comparatively attractive yields in Australia. The USD is unusually weak. The RBA is not keen on market intervention to weaken the AUD.

RBA Governor Stevens and other officials appeared before the House Economics Committee in Brisbane this morning.  While the recent Statement on Monetary Policy (SMP) seemed to emphasise the downside risks to growth, the Governor was a touch more positive yesterday. The Governor was willing to contemplate some upside growth risks and noted that recent forecast changes didn’t really indicate a shift in thinking. Assistant Governor Kent muddied the waters a little by suggesting that the labour market outlook was little changed from earlier thinking as well, with a turning point in unemployment a little sooner than suggested in the SMP. The comment certainly suggests a reluctance to cut rates. But equally, the Governor made it clear that the RBA had not thought about raising rates lately.

The opening statement repeated some of the themes evident in the detailed media interviews and speeches in recent months. Namely, in terms of the world economy, growth is continuing at a “moderate pace”.  Importantly for Australia, major trading partner growth is running around its long‑run average rate.  China’s growth has been close to the official target of 7.5%.  The Governor noted the low volatility across global financial prices which is partly a reflection of the “exceptional” accommodative monetary policy that has been conducted across the world.

In terms of the Australian economy, GDP growth looks set to be between 2% and 3% in 2014/15 which is below its trend rate. The forces restraining growth are well known. The current fall in mining investment could be a bit larger than previously expected. The Australian dollar (AUD) remains relatively high, especially when compared to the level and direction of bulk commodity export prices. The USD, unusually, appears to be relatively weak given its firming growth and interest rate outlooks. Consumer spending is unlikely to lift significantly and could rise in line with modest income growth.

Offsetting these domestic weaknesses there is clear evidence of stronger activity in the interest‑rate‑sensitive areas like housing and other construction. The labour market reflects the conflicting forces in the real economy. The RBA expects the unemployment rate to stay high for a considerable period, until 2016. June quarter GDP growth is likely to be relatively weak compared to the strong QI figure.

The Governor’s testimony indicates that other issues, besides monetary policy, are holding growth back from its potential rate. Namely, a consistent and sustained lift in business confidence is required which would lead to higher non‑mining business investment. The shift to more risk aversion by households and business restrains economic growth.

The unemployment rate could stay near present levels until well into 2016. While forward indicators are positive there are other issues, like strong population growth, which impede a marked reduction in the unemployment rate.The highlights of the Q&A session include:

•  The high AUD reflects strong inflows of capital seeking higher yields, as well as a weak USD.
•  The RBA is keeping direct currency intervention as “part of the toolkit”.  So far, the Governor believes that it was been the “right call” not to intervene in the currency market.
•  Low wages growth is a product of elevated job concerns but it will help the economy adjust to a more competitive position and support jobs growth.
•  Productivity trends appear to be improving but more efforts are required to replicate the 1990s gains.
•  The RBA’s inflation target has a priority in policy deliberations over the setting of the cash rate.

The post RBA Governor says growth could be higher. It’s not just about interest rates appeared first on AdviserVoice.

• The RBA maintained its guidance that “the most prudent course was likely to be a period of stability in rates”.
• The tone was in line with previous Board minutes, highlighting the “significant degree of uncertainty” about the growth outlook.
• Trading partner GDP growth was expected to be slightly above its decade long average. But bulk commodity prices had fallen in the June quarter because of new supply from Australian producers.
• Firmer US activity and the US Federal Reserve’s reduction of financial assistance point to higher US interest rates next year.
• Businesses remain reluctant to commit to higher investment until they see signs of stronger demand.
• The RBA Governor will give his semi‑annual testimony to the House Economics Committee in Brisbane tomorrow.

It is worth remembering that yesterday’s August RBA Board meeting (and the minutes) preceded the more recent Statement on Monetary Policy (SMP). The SMP downgraded slightly the RBA’s GDP and inflation forecasts. It also included a relatively negative view on the labour market. Namely that the unemployment rate is likely to “remain elevated” and may not “decline in a substantial way till 2016”.

The Board minutes are very clearly “neutral” in their outlook for monetary policy. The forces acting against higher growth (like an overvalued AUD) are offsetting significant amounts of the benefits flowing from lower interest rates settings, such as a pick‑up in residential construction, and higher export volumes. The Board sees the conflicting forces operating currently as producing a “significant degree of uncertainty” around the growth forecasts. So the growth “transition” is underway. But the net effect is modest and not sufficient to lift GDP growth close to “trend” outcomes, ie 3¼%pa. More importantly domestic activity measures are well below trend.

The RBA’s views on the inflation outlook are, in our view, reasonably optimistic. They expect the “transition” to mid‑target band inflation as subdued wages growth reduces non‑tradables inflation to similar levels. It is clear that wages growth is subdued, running at just 2.6%pa in QII, the lowest in 16 years. But non‑tradables inflation remains stubbornly at 3%, which is at the top end of the inflation target band. Our take on the most likely way the economic data will evolve in coming quarters is more optimistic, growth‑wise, than the RBA. It has implications for our expectations on the most likely inflation outcomes as well.

It is worthwhile to note that financial markets are pricing in a 50% chance of a rate cut by mid‑2015. So the markets increasingly believe that the headwinds to growth will win the macro‑economic battle in coming quarters. They will be helped by a strong AUD which is negative for many sectors’ growth and employment outlooks. The restructuring forces imparted by the strong AUD are still considerable on activity levels and the inflation outcomes.

The RBA’s comments on the Australian dollar again point out the misalignment between significantly lower bulk commodity prices over the past year and the resilient AUD. Australia’s relatively high yielding interest rate securities, by international standards, are still attracting considerable offshore investor interest, despite the prospect of higher US and UK interest rates through 2015 and 2016.

We still believe that the question the RBA will be likely to debate early next year is “does it make sense to keep cash rates at record lows in an economy running near trend growth and where the desired growth transition is underway?”  We will have to wait for the next few jobs market figures to determine whether the July unemployment rate of 6.4% was an aberration or the new norm. If the unemployment rate falls back to 6% we would see it as supporting our argument.

Our somewhat ambitious call remains in place. We expect the RBA is likely to begin “normalising” monetary policy in early 2015.  The next major parts of the economic jigsaw are the QII Capex survey and, in the following week, QII GDP. Both have some downside risk. Even though the business surveys are showing higher confidence levels it is not flowing into better labour market conditions. The risk is that a sustained stronger AUD could impact on the inflation trajectory and the growth transition and therefore the timing of any ultimate interest rate move.

The post CBA Economics: RBA maintains stable cash rate outlook. appeared first on AdviserVoice.

Housing and business credit rose in May

Annual credit growth is running at the highest level since March 2009.  Annual growth has stepped up from 3.0% to 4.7% over the past year.  The lift in credit growth is a natural response to lower levels of interest rates and some recovery is risk appetite.  While overall credit growth levels remain well below long‑run average levels, the RBA would prefer not to see another debt‑fuelled cyclical upswing.  If credit growth continues expanding at the current trend pace of 0.4%, annual growth rates will top out at around 5%pa.

Housing credit growth continues to lift and annual growth (at 6.2%) is now at the highest level for nearly two years.  The dominant driver of higher housing credit growth is investor lending.  Unlike in other housing upswings, investor activity has accounted for a larger than usual proportion of housing activity.  For example, in the year to April, total owner‑occupied housing loans financed accounted for 56% of activity and investor loans were 38%.  This compares to the housing upswing in 2009 when owner‑occupier accounted for 62% and investors 31%.  Rental yields have fallen recently which is natural as dwelling prices increase.  Lower rental returns should dampen investor activity.

Housing credit growth (6.2%pa) is now running well above income growth (4.4%pa) which means that the household debt‑to‑income ratio is rising again.  The RBA will be watching changes in the debt‑to‑income ratio closely to ensure that household balance sheets remain sound.  The recently released financial accounts indicated that that the household debt‑to‑disposable income ratio increased to 183.5 in QI (167.4 in QIV).

Broad money growth is often taken as a proxy for the savings rate because it is the widest measure of deposits held.   Annual growth in broad money is roughly unchanged on QI which suggests that the savings ratio has remained stable.

Business credit growth remains low but is showing signs of faster growth (annual growth is 2.7%pa compared to 1.0%pa this time a year ago).  Business sentiment has held up despite the post budget drop in consumer confidence.  Other data indicates that business lending has risen significantly over the past few months.  We also suspect that a large proportion of businesses are using this period of low interest rates to pay down debt.  The credit data is a measure of the stock of credit which means that it may not capture the surge in lending if businesses are paying down debt.

Other personal credit growth remains weak and fell by 0.3% in May (0.3%pa).

There do not seem to be any signs of an immediate post‑Budget impact on credit growth.  Housing credit growth remains strong, business credit is picking up and the weak trend in other personal credit has continued.

The post No signs of Budget fears in May credit data appeared first on AdviserVoice.

• There was no change to the RBA’s guidance about a period of stability in rate settings continuing.
• The June Board minutes look a bit more dated than usual given they predate the strong QI GDP result and the May jobs data.  Growth in 2014 looks like it will be around trend rather than “below trend”, as current RBA commentary suggests.
• The much‑anticipated pick up in non‑mining business capex now looks more definitive, given the latest capex survey.
• The RBA do not appear to be concerned with the recent sudden fall in sentiment.  Sharp movements in consumer sentiment do not necessarily mean a commensurate impact on household spending.
• We continue to expect the RBA to start raising interest rates in November.  Market expectations are focused around late 2015.

The June RBA Board minutes are probably a bit more dated that usual because the Board meeting pre‑dated the better than expected QI GDP data. The Board minutes note that GDP growth in 2014 is “expected to be below trend…rising gradually thereafter”.  However the strong QI print means that the next few GDP data outcomes will need to be quite low, if growth in 2014 is to be below trend.  This looks unlikely given recent data prints.  Overall, the minutes are more dovish than you would expect given the recent encouraging data.  There is still a bias to accentuate the downside risks.

The RBA’s comments around the labour market also seem to be down‑playing the positives in the recent data.  The RBA expect “moderate growth” in employment over the near‑term.   The Board meeting also predates the May employment data which showed that the unemployment rate was steady for the third month in a row at 5.8%.  If sustained, this means that the unemployment rate has already peaked, at 6.0% in January, a sooner and lower peak than the RBA was anticipating.

The RBA’s commentary on the capex environment has also shifted marginally given the latest release of the capex survey. Previously, the RBA said that a pick up in non‑mining investment was expected and in “prospect”.  The June minutes seem to be more definitive in the expected rise in non‑mining capex, noting that the latest capex survey was pointing to a “modest increase” in non‑mining investment.

The RBA noted that the 2014‑15 Federal Budget implied a narrowing in the deficit over the next two years that was slightly more than had been estimated in the 2013‑14 MYEFO, but in line with their own expectations.  Consumer sentiment has taken a hit over recent months, because of negativity around the Federal Budget and the potential impact on household finances.  The risk is that the decline in sentiment translates through to an actual impact on consumer spending.   The RBA commentary in the June minutes noted that sharp movements in consumer sentiment (such as the recent fall) do not necessarily translate into commensurate shifts in consumer spending.  A lessening in consumer job security fears is likely to also be lessening the impact of low sentiment on actual household spending activity.

The RBA’s comments on the Australian dollar are in line with the post‑meeting Statement, noting that “the exchange rate remained high by historical standards” given the decline in commodity prices recently.

We continue to expect the RBA to begin “normalising” monetary policy late in 2014, with a rate rise in November.  Markets are pricing in an interest rate hike in late 2015.  The risk is that a sustained stronger AUD could impact on the inflation trajectory and the growth transition and therefore the timing of any ultimate interest rate move.

The post June RBA Board minutes more dated than usual appeared first on AdviserVoice.

• Consumer sentiment rose by a small 0.2% in June but is 8.8% below year its year ago level
• Confidence is still being adversely impacted by the negativity around the Federal Budget.
• The positive news is that job security fears receded marginally.  The unemployment expectations index has now fallen for three months in a row, though consumer fears over job loss remain elevated.

The Westpac‑Melbourne Institute Index of Consumer Sentiment was largely unchanged over June.  Sentiment plunged in May following the Federal Budget and is sitting at its lowest level in almost three years.  There is a risk that prolonged weak consumer confidence negatively impacts on household spending and borrowing appetite.

There are many economic, social and political influences on consumer sentiment.  The state of the jobs market is one of the biggest influences on consumer confidence.  In that context, the recent pickup in employment growth and small fall in the unemployment rate would normally have produced a lift in consumer sentiment.  But improvements in the labour market have been overshadowed by the doom and gloom surrounding the Federal Budget.

The consumer response to the Federal Budget is quite clear – they don’t like it and confidence around family finances has fallen as a result.  In the six months to April, consumer spending growth picked up and the household savings rate fell marginally.  Both of these outcomes were a sign of improved consumer confidence.  And they were also both a positive sign for businesses and the Australian economy more generally.  There is a genuine threat to retailers from the big fall in sentiment since May.  This is compounded by warmer weather having delayed traditional seasonal purchases like clothes and household goods.

Looking through the detail reveals that three of the five component indices increased in June.  The largest increase was in family finances in the year ahead (+5.0%) and economy one year ahead (+3.0%).  These were partially offset by family finances year ago (‑5.4%) and economy five years ahead (‑2.3%).  The time to buy a major household item index rose by 1.0%.

The June sentiment release also contains quarterly estimates of consumer preference for the wisest place to put savings.  There were small lifts in the proportions of respondents preferring to pay down debt (17.3%) and invest in equities (9.9%).  Conversely, there were small falls in the proportions of those preferring bank deposits (27.5%) and real estate (24.5%).  The responses are generally reflective of consumer caution, although the proportion of respondents favouring real estate indicates that there is still a reasonable degree of optimism around the housing market.  In addition, the trend down in those preferring bank deposits suggests that consumers are a little less risk adverse.

The Westpac‑Melbourne Institute unemployment expectations index was also published yesterday. It was the main positive in yesterday’s figures and showed that fears over job losses receded marginally over the month.  Notwithstanding, concerns over job security remain elevated.

The post Consument sentiment still being impacted by negativity around the Federal Budget appeared first on AdviserVoice.

The week ahead

The ECB cut rates and introduced aggressive expansionary measures to lift EZ growth.

The market reaction to tonight’s May non‑farm payrolls data is likely to set the tone across financial markets next week. A rise of around 215k in employment is expected, with the unemployment rate to rise slightly to 6.4%. Such an outcome would be within the Fed’s general expectation about growth trends. Markets also believe that a smaller jobs gain most probably would not derail the Fed’s next “tapering” adjustment at the 18 June FOMC meeting. US bond yields rose during the week, as the growth outlook improved, after reaching unusually low levels at the end of May.

The past week has had some interesting developments. The ECB delivered some reasonably aggressive changes to monetary policy settings aimed at lifting growth and lifting inflation over coming quarters. The introduction of negative interest rates for deposits at the ECB by the major banks was widely expected. But it is still an unusual measure and demonstrates the seriousness of the deflation pressures in the EZ. In contrast to the ECB’s measures, the Bank of England left their cash rate at a record low of 0.5% on Thursday.

In the US, in the past week, there was some confusion over the correction to the ISM data that ultimately showed a continued expansion in the US manufacturing sector. It was positive for the US growth outlook and helped to lift longer term bond yields up from their recent lows.

The data schedule in the US and Europe is relatively light and skewed towards the end of the coming week. In the US the major releases are the May retail sales and consumer confidence data. The focus will tend to be on the upcoming Fed meeting in the following week. In the EU there will be updates on industrial production and the international trade balance. The UK has employment data which, if stronger than expected, could have the markets pondering the timing of the BoE’s expected rate hike. UK markets have priced in a BoE rate hike in QII 2015.

In Australia over the past week we had updates on a large number of indicators. The major one was the QI GDP which came in at a robust 1.1% to push annual growth to 3.5%, the highest in the past two years. Our analysis is included inside. The major driver of the QI result was mining‑related exports. Over the past year, about two thirds of growth has come from that source. Other data showed a stumble in the monthly building approvals. But the pipeline of planned construction remains large and should keep adding to growth. April’s modest retail trade rise still left annual growth at just under its long term average of 5%pa. The small April trade deficit followed a string of strong, upwardly revised surpluses.

In Australia this week, the main release is Thursday’s jobs data which is expected to show a rise of 10k. The unemployment rate is forecast to stay at 5.8%. Conditions in the Australian labour market have improved and the forward looking indicators suggest jobs growth will rise in coming quarters.

In New Zealand, the RBNZ is expected to lift their OCR to 3.25% on Thursday as the inflation risks rise and economic growth lifts. The RBNZ could stay on the sidelines in following months, until December, and watch the flow of data before lifting rates again.

The post Perspective: The week ahead appeared first on AdviserVoice.

• The volume of construction work done rose by 0.3% in QI.  It is 2.6% higher through the year.
• Residential construction surged by 6.8% while non‑residential construction fell by 1.5%.
• Engineering volumes were down 1.6% from near record highs.
• Private sector construction work done rose by 2.0% in QI while public sector construction fell by 6.8%.
• Construction work done will make a small positive contribution to QI GDP growth (published 4 June)

A modest lift in the volume of construction bettered market expectations

The modest lift in the volume of construction work done over QI bettered market expectations which were centred on a fall of 0.5% {CBA (‑0.3%)}.  The increase followed an upwardly revised fall of 1.1% in QIV (previously 1.0%).  The headline result is on the soft side, but the good news is that the desired lift in non‑mining construction is occurring.  In particular, residential construction has surged which is consistent with the big lift in building approvals over the past year.

Engineering construction fell by 1.6% from near record highs.  A fall was anticipated and is consistent with our previously held view that mining construction would peak in H2 2013.  The magnitude of the fall was roughly in line with expectations.  Looking ahead, some large scale LNG projects will support engineering construction over the near‑term.  But we have reached the peak in engineering investment and we expect declines to continue over coming quarters.

Policy makers will take some comfort from the surge in residential construction over QI.  Despite a big lift in building approvals, we hadn’t yet seen a commensurate lift in residential construction.  This was due to the lift in approvals being driven by multi‑density dwellings (i.e. apartment blocks) and there is a longer lag between apartment approvals and work commencing compared with houses.

We expect to see further increases in residential construction over the coming quarters. A lift in dwelling investment will absorb some of the job losses from the mining capex downturn.  And a lift in housing supply will also help slow the acceleration in house price growth observed over the past year.

Non‑residential construction fell by 1.5% and remains soft.  The value of non‑residential building approvals lifted by 4.3% over the six months to March so we expect to see non‑residential construction lift over coming quarters.

The national lift in construction was driven by the non‑mining states of NSW (+5.1%) and Vic (+4.4%).  And it was in the residential construction space.  WA recorded a modest lift in construction (+1.3%) while QLD recorded a fall of 4.4%.  It’s worth keeping in the mind that the quarterly state construction figures tend to be quite volatile.

In summary, a data print today that will provide some comfort to policy makers.  The recent strength in building approvals has translated in a substantial lift in residential construction, while the decline in engineering construction has been expected for some time now.

The focus now turns to the ABS capital expenditure survey published tomorrow (28 May).  It will contain figures for actual capital spending in QI, the sixth estimate of 2013/14 capex spending and most importantly the secondestimate of 2014/15 capex spending.  Although somewhat limited in its coverage, the second reading of estimated spending in 2014/15 will send a signal about whether the desired transition from mining investment to non‑mining investment is occurring.

The post Residential construction (finally) takes off appeared first on AdviserVoice.