What does it all mean?

• The RBA Board minutes was meant to be a rather boring affair, particularly given that since the decision to leave interest rates on hold in early November, we have had the release of the Statement on Monetary policy as well as the a couple of key speeches – including one by the Reserve Bank Governor Stevens. However the minutes provided policymakers with a further opportunity to flesh out their views on future interest rates movements.
• The minutes stressed that the Board members had discussed not to close the door on further rate cuts, but also explicitly state that further rate cuts are not a certainty. In other words, policymakers are hoping that the super stimulus being provided by low rates will be enough, but if not well they will consider a further interest rate cut Essentially the Reserve Bank is in “wait and see” mode, and will look to get a clearer picture of how the domestic business and household sectors respond in the Christmas spending period and in the early part of 2014.
• The Statement on Monetary policy, released a fortnight ago, fleshed out the Reserve Banks views on the economic landscape. There confirmed modest downgrades to near medium term economic growth forecasts, while inflation is expected to remain in the 2-3 per cent target band.
• Interestingly two key concerns continued to dominate central bank thinking. The rebalancing of the domestic economy (away from mining investment) and the uncomfortably high Australian dollar. Policymakers seem more comfortable on the transition to the new Australian growth driver, the housing sector. However discussions around the currency suggested that a low currency would be need to rebalance the economy.
• Overall the minutes certainly suggest an air of cautious optimism. While below-trend growth and rising unemployment were likely to be near term drags on the economy. The super stimulatory monetary policy setting is supporting a pickup in activity across interest rate sensitive sectors. If there is an ongoing lift in activity and unemployment does not rise at an uncomfortable pace, the Reserve Bank will be comfortable remaining on the interest rate sidelines.
• It is important to note that the Reserve Bank has provided the economy with substantial stimulus in the last year. And while the RBA maintains a cautious approach, the prior rate cuts are only just starting to have an impact across the economy. CommSec expects no change in policy settings in the next few months.

What do the minutes and data reveal?

RBA Board minutes

• The full-text of the minutes can be found at: http://www.rba.gov.au/monetary-policy/rba-board-minutes/2013/05112013.html
• The key paragraph of the minutes was: “The Board’s judgement was that, given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects, but not to close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity, consistent with the inflation target. The Board would continue to examine the data over the months ahead to assess whether monetary policy remained appropriate.”
• The Reserve Bank believes that substantial rate cuts was providing positive momentum to the economy: “There was mounting evidence that monetary policy was supporting activity in interest-sensitive sectors and asset values, and given the lags with which monetary policy operates, the stimulatory effects would likely continue coming through for some time.”
• The Reserve Bank said continued to discuss the need for a low Australian dollar: “Australian dollar, while below its level earlier in the year, remained uncomfortably high. Members noted that a lower level of the exchange rate would likely be needed to achieve balanced growth in the economy.”
• The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
• The Reserve Bank has retired to the sidelines. We believe that it will be reluctant to cut rates again unless global or domestic factors unexpectedly weaken. The election is out of the road; there are signs that confidence levels are lifting; the housing market is strengthening; and the Chinese economy is improving. The Reserve Bank would be hopeful that the economy strengthens in coming months, underpinned by super-low interest rates and momentum provided by home construction and sales.
• The main game for the Reserve Bank is the changing of the baton of economic growth drivers from mining to other sectors of the economy. In particular the RBA will be closely assessing borrowing behaviour, especially the desire to take on more risk.

What is the importance of the report?

• The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.

What are the implications for interest rates and investors?

• The Reserve Bank has retired to the sidelines. We believe that it will be reluctant to cut rates again unless global or domestic factors unexpectedly weaken. The election is out of the road; there are signs that confidence levels are lifting; the housing market is strengthening; and the Chinese economy is improving. The Reserve Bank would be hopeful that the economy strengthens in coming months, underpinned by super-low interest rates and momentum provided by home construction and sales.
• The main game for the Reserve Bank is the changing of the baton of economic growth drivers from mining to other sectors of the economy. In particular the RBA will be closely assessing borrowing behaviour, especially the desire to take on more risk.

What does it all mean?

• Perhaps Aussie consumers were too busy at home auctions or sprucing their homes up for sale, but the evidence suggests that fewer people were at shopping malls or generally spending their money.
• But with the election out of the road, the US budget and debt issues solved for now, consumer confidence lifting and with key sharemarket indexes at record highs, economy-wide spending should lift in coming months.
  • Economy-wide spending fell for the first time in 13 months in September according to the latest Commonwealth Bank Business Sales Indicator (BSI). Spending fell by 0.1 per cent in the month after lifting 0.1 per cent in August and rising by 0.2 per cent in July. It was the fifth decline in the pace of sales after spending posted a solid 1.1 per cent gain in April. The question is whether the slowdown in spending is a pause for breath similar to the February-July 2012 experience or something entirely different.
  • The seasonally-adjusted measure of sales fell by 1.4 per cent in September after rising by 2.5 per cent in August and the annual growth rate eased from 12.0 per cent to 5.3 per cent.
  • The Commonwealth BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. And in line with the practice of the Bureau of Statistics with its retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. The seasonally adjusted and trend BSI results are derived from the same SEASABS statistical software. This allows analysis of the broader underlying trends that may be hidden in the raw data.
  • Across sectors, seven of the 19 industry sectors fell in trend terms in September. Spending fell most in Mail Order/Telephone Order Providers (down 2.1 per cent) followed by Utilities (down by 1.1 per cent), Retail Stores (down 0.9 per cent) Automobile & Vehicle Rentals (down 0.7 per cent) and both Business Services & Repair Services (both down 0.5 per cent).
  • Amongst the strongest sectors in September were Amusement & Entertainment (up 3.9 per cent), Automobiles & Vehicle Sales (up 1.2 per cent) and Wholesale Distributors & Manufacturers (up by 1.0 per cent).
  • In annual terms in September, only three of the 19 industry sectors contracted: Mail Order/Telephone Order Providers, Business Services and Automobile & Vehicle Rentals. In August, similarly only three of the sectors posted weaker sales than a year ago.
  • At the other end of the scale, sectors with strongest annual growth in September included Wholesale Distributors & Manufacturers, Service Providers, Government Services and Amusement & Entertainment.
  • Sales were clearly mixed across the country with four of the states and territories recording weaker sales in trend terms in September. Leading the declines was Western Australia (down by 0.5 per cent), followed by NSW (down 0.4 per cent), Queensland (down 0.1 per cent) and ACT (down less than 0.1 per cent).
  • Sales rose most in South Australia (up 2.6 per cent), followed by Northern Territory (up 0.6 per cent) and Tasmania and Victoria (both up 0.2 per cent).
  • The trend BSI has now risen for 28 months in the Northern Territory, for 26 straight months in South Australia, for 18 straight months in Tasmania and for 15 straight months in Victoria.
  • In annual terms, no state or territory had sales below a year ago. Strongest growth was posted in South Australia (up 21.2 per cent) followed by ACT (up 14.0 per cent), NSW and Tasmania (both up 8.6 per cent).
  • The Commonwealth Bank releases its Business Sales Index around the 20^th each month. The data provides a broader perspective of consumer spending. The Business Sales Indicator includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes & restaurants and as such is more comparable to the ABS Household Final Consumption Expenditure released on a quarterly basis. The Business Sales Indicator also covers businesses such as airlines, car dealers and utilities such as water and electricity companies as well as motels, business, professional and government services and wholesalers
• The Reserve Bank will watch the situation closely. If spending doesn’t lift, and at the same time if inflation is contained and the Aussie dollar lifts, then the Reserve Bank will be tempted to cut rates. Much will depend on the housing market. If demand for homes remains strong then the Reserve Bank will be reluctant to cut rates again.
• What is clear is that few if any companies have pricing power. Competition is not just provided by businesses in the same street or suburb but from across Australia and across the globe. Focus must be placed on marketing activities and cost control.

What does the data show?

• Economy-wide spending fell for the first time in 13 months in September according to the latest Commonwealth Bank Business Sales Indicator (BSI). Spending fell by 0.1 per cent in the month after lifting 0.1 per cent in August and rising by 0.2 per cent in July. It was the fifth decline in the pace of sales after spending posted a solid 1.1 per cent gain in April. The question is whether the slowdown in spending is a pause for breath similar to the February-July 2012 experience or something entirely different.
• The seasonally-adjusted measure of sales fell by 1.4 per cent in September after rising by 2.5 per cent in August and the annual growth rate eased from 12.0 per cent to 5.3 per cent.
• The Commonwealth BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. And in line with the practice of the Bureau of Statistics with its retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. The seasonally adjusted and trend BSI results are derived from the same SEASABS statistical software. This allows analysis of the broader underlying trends that may be hidden in the raw data.
• Across sectors, seven of the 19 industry sectors fell in trend terms in September. Spending fell most in Mail Order/Telephone Order Providers (down 2.1 per cent) followed by Utilities (down by 1.1 per cent), Retail Stores (down 0.9 per cent) Automobile & Vehicle Rentals (down 0.7 per cent) and both Business Services & Repair Services (both down 0.5 per cent).
• Amongst the strongest sectors in September were Amusement & Entertainment (up 3.9 per cent), Automobiles & Vehicle Sales (up 1.2 per cent) and Wholesale Distributors & Manufacturers (up by 1.0 per cent).
• In annual terms in September, only three of the 19 industry sectors contracted: Mail Order/Telephone Order Providers, Business Services and Automobile & Vehicle Rentals. In August, similarly only three of the sectors posted weaker sales than a year ago.
• At the other end of the scale, sectors with strongest annual growth in September included Wholesale Distributors & Manufacturers, Service Providers, Government Services and Amusement & Entertainment.
• Sales were clearly mixed across the country with four of the states and territories recording weaker sales in trend terms in September. Leading the declines was Western Australia (down by 0.5 per cent), followed by NSW (down 0.4 per cent), Queensland (down 0.1 per cent) and ACT (down less than 0.1 per cent).
• Sales rose most in South Australia (up 2.6 per cent), followed by Northern Territory (up 0.6 per cent) and Tasmania and Victoria (both up 0.2 per cent).
• The trend BSI has now risen for 28 months in the Northern Territory, for 26 straight months in South Australia, for 18 straight months in Tasmania and for 15 straight months in Victoria.
• In annual terms, no state or territory had sales below a year ago. Strongest growth was posted in South Australia (up 21.2 per cent) followed by ACT (up 14.0 per cent), NSW and Tasmania (both up 8.6 per cent).

What is the importance of the report?

• The Commonwealth Bank releases its Business Sales Index around the 20^th each month. The data provides a broader perspective of consumer spending. The Business Sales Indicator includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes & restaurants and as such is more comparable to the ABS Household Final Consumption Expenditure released on a quarterly basis. The Business Sales Indicator also covers businesses such as airlines, car dealers and utilities such as water and electricity companies as well as motels, business, professional and government services and wholesalers

What are the implications for interest rates and investors?

• The Reserve Bank will watch the situation closely. If spending doesn’t lift, and at the same time if inflation is contained and the Aussie dollar lifts, then the Reserve Bank will be tempted to cut rates. Much will depend on the housing market. If demand for homes remains strong then the Reserve Bank will be reluctant to cut rates again.
• What is clear is that few if any companies have pricing power. Competition is not just provided by businesses in the same street or suburb but from across Australia and across the globe. Focus must be placed on marketing activities and cost control.

Employment rate drops

Jobs & jobless rate: Employment rose by 10,300 in June after falling by a revised 700 jobs in May (previously reported as a 1,100 rise in jobs). Economists had expected a flat result.

The unemployment rate rose from 5.6 per cent to 5.7 per cent in June – a near four year high. The participation rate rose from 65.2 per cent to 65.3 per cent.

Full-time jobs fell by 4,400 after falling by 6,800 in April. Part-time jobs rose by 14,800 in June after rising by 6,100 in May.

In the first six months of 2013 over 104,700 jobs have been created. Part time jobs have risen by 82,700 in first six months of 2013 – marking the biggest lift in a calendar year in 11 years.

The number of hours worked rose by 0.5 per cent in June to be up 1.9 per cent in over the year to June.

Unemployment across states and territories: NSW 5.4 per cent (5.5 per cent in May); Victoria 5.4 per cent (5.4 per cent); Queensland 6.4 per cent (5.9 per cent); South Australia 6.0 per cent (5.9 per cent); Western Australia 4.6 per cent (4.9 per cent); Tasmania 8.9 per cent (7.5 per cent); Northern Territory 5.3 per cent (5.2 per cent); ACT 3.7 per cent (3.9 per cent).

• Consumer sentiment: The Westpac/Melbourne Institute index of consumer confidence fell by 0.1 per cent in July. Three of the five components of the index fell in July. The index is up 3.0 per cent over the year to July.
• Confidence was mixed across states: Consumer confidence recorded healthy gains in NSW and South Australia but fell sharply in Queensland, Western Australia and was mildly weaker in Victoria.
• Weaker Chinese trade data: China reported a healthy trade surplus of $27.13 billion in June, however both exports and imports were weaker than forecasts.

What does it all mean?

• The national consumer confidence index remains in optimistic territory but it is clear that consumers remain cautious about the economic outlook – particularly across the mining states. Respondents in Queensland were decidedly pessimistic while there was a sharp pullback in confidence levels in Western Australia. It seems that the cost-cutting measures across the mining sector coupled with the pullback of mining investment starting to filter through the wider community.
• Interestingly respondent views on whether it was a good time to buy a major household item remains well and truly in positive territory. However while consumers may believe that the retail landscape looks attractive, it doesn’t seem like they are being enticed to go out and spend. Last week’s retail data highlighted that non-food spending was growing by a paltry 0.9 per cent over the year to May – the weakest result in over three years.
• Overall confidence levels are okay and have ironically held in optimistic territory for the past two months, despite the surge in fuel prices, sliding Aussie dollar and sharemarket volatility. All three factors would generally make households a little bit more despondent about life. The key defining factor that could have supported confidence levels was the Reserve Bank decision to leave interest rates unchanged over the past two months.
• What is clear is that the Australian economy has changed. Cutting interest rates from 6 per cent down to 5 per cent provides a significant benefit across the economy, however when rates are cut from already super low levels to 53 year lows, it does send the message that there may be something wrong with the health of the domestic landscape.
• The Chinese trade accounts recorded a healthy surplus in June. However the concern lies with the surprising contraction in exports and imports. Chinese exports contracted at the fastest pace in almost four years while imports were also weaker. It is difficult to get a proper read on China but the tightening of credit in the last couple of months may shave slowed down growth and can potentially hurt asset prices. The one positive is that inflation remains well contained, and if growth does slow considerably, policymakers have the option of stimulating the economy.

What do the figures show?

Consumer sentiment:

• The estimate of family finances compared with a year ago fell by 5.6 per cent;
• The estimate of family finances over the next year fell by 2.7 per cent;
• Economic conditions over the next 12 months rose by 0.8 per cent;
• Economic conditions over the next 5 years rose by 9.2 per cent;
• The measure on whether it was a good time to buy a major household item fell by 1.7 per cent.

Consumer confidence across states: NSW 107.8 (up 5.3 per cent); Victoria 102.0 (down 2.0 per cent); Queensland 89.5 (down 7.0 per cent); Western Australia 105 (down 6.4 per cent); South Australia 101.3 (up 2.0 per cent).
Gender & demographics: Men (index reading of 99.4, down 5.9 per cent) were modestly pessimistic. Women (104.8, up 5.9 per cent). Young people (18-24 years) were more pessimistic in July (index down 14.5 per cent to 123.6). Across the other demographics: 25-44 years, (index 104.0, down 3.2 per cent); 45 years plus (index 97.1, up 5.5 per cent).
By home ownership status: Confidence amongst tenants fell by 20.4 per cent; confidence by those who own their homes was up 1.9 per cent; while confidence levels by those paying off home loans rose by 6.6 per cent.

Chinese trade

• The Chinese trade accounts recorded a $27.13 billion surplus (forecast was for a surplus of $27.80 billion) in June. Exports fell by 3.1 per cent in the year to June (forecast +3.7 per cent) while imports fell by 0.7 per cent (forecast, +6.0 per cent).
• Over the year to June the trade surplus was US$272 billion, easing further away from the four-year high of $281.3 billion in the year to February.
• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
• China’s Customs Office releases trade data around the 10^th of each month. China is the world’s second largest economy and Australia’s largest trading partner. Changes in the Chinese economy have major implications for the global and Aussie economy, exchange rates and interest rates.
• The Reserve Bank remains poised to cut rates. There are plenty of good reasons for Aussies to be encouraged by the state of their economy, but it is likely that the weaker Aussie dollar, higher fuel prices and volatile share markets will dominate sentiment – particularly in the lead up to the election.
• CommSec expects the Reserve Bank to maintain its easing bias with a further rate cut pencilled in for August.

What is the importance of the economic data?

• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
• China’s Customs Office releases trade data around the 10^th of each month. China is the world’s second largest economy and Australia’s largest trading partner. Changes in the Chinese economy have major implications for the global and Aussie economy, exchange rates and interest rates.

What are the implications for interest rates and investors?

• The Reserve Bank remains poised to cut rates. There are plenty of good reasons for Aussies to be encouraged by the state of their economy, but it is likely that the weaker Aussie dollar, higher fuel prices and volatile share markets will dominate sentiment – particularly in the lead up to the election.
• CommSec expects the Reserve Bank to maintain its easing bias with a further rate cut pencilled in for August.