• 

  Car sales lifted in September

  New home sales rise: New home sales rose by 3.3 per cent in August after slumping by 5.7 per cent in July. Sales of detached houses rose by 0.5 per cent in August and multi-unit sales rose by 19.8 per cent.

• Car sales hit record highs. New car sales rose by 2.5 per cent in September compared with a year earlier. A total of 94,978 vehicles were sold in September – the highest reading on record for a September month.
• Over the year 345,504 new sports utility vehicles (SUVs or 4WDs) were sold, a record 30.9 per cent of total vehicle sales.
• Services activity contracts: The Performance of Services index fell by 4 points to 45.4 in September.

What does it all mean?

• The lift in new home sales activity comes after a slide in the prior month. And while there are signs of a consolidation in housing activity, new home sales are up over 12 per cent on a year ago. Given that council approvals have hit record highs and fixed mortgage rates have been cut by some of the banks, it is clear that homebuilding and home renovations will be the linchpin of the Australian economy growth story over the coming year.
• Interestingly the economic momentum is shifting from resource states and territories to those regions where home construction is rising fastest – such as NSW. The Reserve Bank would be more comfortable with the lift in new home sales and strength in home building and it is unlikely to look to shift interest rate settings any time soon.
• The industry body representing the car industry has released the latest new car sales data and it was certainly a positive surprise. Not only were car sales up 2.5 per cent in September on a year ago, but a total of 94,798 new vehicles were sold – a record for a September month. Improved job security and the best car affordability since the 1970s are all serving to boost new vehicle sales.
• The star performer continues to be sports utility vehicles (SUVs). Sales of SUVs were up almost 15 per cent on a year ago and now make up a record 30.9 per cent of total vehicle sales. In effect one in every three vehicles sold is a SUV.

What do the figures show?

New home sales

• New home sales rose by 3.3 per cent in August, after falling by 5.7 per cent in July. Apartment sales rose by 19.8 per cent while detached house sales rose by 0.5 per cent.
• In August 2014 seasonally adjusted detached house sales increased by 11.1 per cent in New South Wales and by 2.0 per cent in Western Australia. Detached house sales fell by 6.8 per cent in South Australia, 6.0 per cent in Victoria and 0.7 per cent in Queensland.

New car sales:

• According to the Federal Chamber of Automotive Industries (FCAI), new car sales rose by 2.5 per cent over the year to September 2014. In September, 94,978 new vehicles were sold. And over the year to September, 1,119,236 vehicles were sold, down further from the record 1,141,483 new vehicles sold on the year to July 2013.
• Passenger car sales fell by 4.1 per cent over the year, sports utility vehicles were up by 14.6 per cent and “other” vehicles sales were up by 2.3 per cent. In the year to September 345,504 SUVs were sold, a record 30.9 per cent of total vehicle sales. Of total car and SUV sales, SUVs accounted for a record 38.8 per cent of the total.

Performance of Services

• The PSI index fell by 4.0 points to 45.4 in September. A reading below 50 points indicates contraction of the services sector. All components fell in September except employment, selling prices and capacity utilisation.
• The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 home builders. The survey covers around 14 per cent of the home building industry.
• The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
• The Performance of Services index is released by Australian Industry Group each month. The PSI is designed to provide a guide to conditions in retail, financial and other service sectors.
• The economy continues to gain momentum after a pause around Budget time. Given strong car affordability and better consumer confidence levels, demand for cars should remain healthy, supporting a raft of businesses.
• The ongoing lift in new home sales and housing construction will support broader growth and employment. Over the next few months the job market data is taking on a higher degree of importance. Once the Reserve Bank is confident that unemployment has peaked, it will be more inclined to start the ‘normalisation’ of interest rates.

What is the importance of the economic data?

• The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 home builders. The survey covers around 14 per cent of the home building industry.
• The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
• The Performance of Services index is released by Australian Industry Group each month. The PSI is designed to provide a guide to conditions in retail, financial and other service sectors.

What are the implications for interest rates and investors?

• The economy continues to gain momentum after a pause around Budget time. Given strong car affordability and better consumer confidence levels, demand for cars should remain healthy, supporting a raft of businesses.
• The ongoing lift in new home sales and housing construction will support broader growth and employment. Over the next few months the job market data is taking on a higher degree of importance. Once the Reserve Bank is confident that unemployment has peaked, it will be more inclined to start the ‘normalisation’ of interest rates.

The post Car sales hit record highs; New home sales lift appeared first on AdviserVoice.

• 

  Housing approvals rose for the second month in a row.

  Dwelling approvals: Dwelling approvals rose by 3.0 per cent in August and are up 14.5 per cent over the year. Over past 12 months a record 197,571 dwellings were approved – marking the highest result on record.

• Trade deficit narrows: Australia’s trade deficit narrowed by $288 million to a deficit of $787 million in August – largely in line with forecasts.
• Exports to China eased for the fourth straight month with receipts of $98.5 billion for the year to August. Exports to the US hit a near 5-year high of $10.42 billion in the year to August.
• Reserve Bank Assistant Governor, Malcolm Edey, and Head of Financial Stability Department, Luci Ellis, appeared before the Senate Committee. The RBA officials stressed that no specific macro-prudential controls have been ruled in or out although restrictions on loan to valuation ratios (LVRs) were considered unlikely.

What does it all mean?

• The latest economic data was clearly encouraging – particularly the lift in dwelling approvals. Dwelling approvals rose for the second straight month in August and hit record highs when viewed over the past 12 months. At the same time the trade deficit narrowed.
• Over the past 12 months there were 197,571 approvals to build new homes, marking the highest result on record. And despite the fact that approvals have consolidated over the past few months it is pretty clear that housing activity is going to be the backbone of Australia’s growth story over the coming year.
• Keep in mind that dwelling approvals (16,810) are holding over 24 per cent above decade averages, underpinned by pivotal private sector house approvals, suggesting that home building is set to lift further over the second half of 2014.
• Lower interest rates, strong population growth, improving affordability, and pent up housing demand will see the housing sector gather pace over the medium term. In addition the recent cuts to fixed interest rates by the major banks will spur a further round of home building.
• The lift in approvals will appease policymakers to some degree. Fundamentally, the growth in house prices has been driven by a lack of stock, and a substantial lift in new housing stock should ensure more sedate price growth over the longer term.
• The latest trade figures were more positive than in recent times. Australia recorded its fifth consecutive trade deficit, but the August deficit of $787 million was the smallest deficit over that period. In addition the recent slide in the Australian dollar is yet to filter to through to the trade accounts and should support a lift in exports in the next result.
• From a broader sense Australia is certainly less vulnerable to external shocks than compared with the past and the demand for Australian resources will continue to underpin the trade accounts. That is not just an ongoing lift in iron ore volumes, but also the anticipated lift in LNG exports. And to some degree the slide in commodity prices will be offset by the fall in the Australian dollar.
• Interestingly Australia’s exports to China and the US are looking more encouraging. Australia’s exports to China held just shy of $100 billion the year to August, and account for over 36 per cent of Australia’s total exports. And exports to the US hit a near 5-year high of $10.42 billion in the year to August. No doubt the lift in growth across the super economies bodes well for Australia’s external growth prospects.
• While rate hikes are off the near term agenda, it is unlikely that the Reserve Bank will shift away from its “interest rate stability” rhetoric any time soon. A few solid months of robust employment would be required to change the “on hold” message. The data suggests that the Reserve Bank will continue to keep a neutral view on rates with a slightly dovish skew.

What do the figures show?

Building Approvals:

• Dwelling approvals rose by 3.0 per cent in August after rising by 2.1 per cent July. Approvals are up 14.5 per cent over the year. Over past 12 months a record 197,571 dwellings were approved – marking the highest reading on record.
• The current number of dwelling approvals (16,810) is well above the decade average (13,555) and five-year average (14,291).
• House approvals fell by 1.4 per cent in August (private sector down 1.8 per cent). Meanwhile ‘lumpy’ apartment approvals rose by 9.2 per cent in August after rising by 3.0 per cent in July.
• House approvals are up 12.6 per cent over the past year while apartments are up 17.1 per cent.
• Across states in August: NSW approvals rose by 2.9 per cent; Victoria rose by 15.5 per cent; Queensland rose by 1.4 per cent; South Australia rose by 11.3 per cent; Western Australia fell by 16.2 per cent; Tasmania fell by 0.6 per cent.
• The value of all commercial and residential building approvals rose by 0.5 per cent in August after falling by 10.9 per cent in July. Residential approvals rose by 3.0 per cent with new building up by 3.4 per cent and alterations & additions up by 0.4 per cent. Commercial building fell by 4.5 per cent in August after falling by 27 per cent in July.

International trade:

• Australia’s trade deficit narrowed by $288 million to a deficit of $787 million in August. The July trade balance was revised from a deficit of $1,359 million to a deficit of a $1,075 million.
• In August, exports of goods and services fell by 1.5 per cent (goods down by 1.9 per cent) while imports of goods and services fell by 2.5 per cent (goods down 3.1 per cent). Exports are down 4.7 per cent on a year ago, while imports are down by 5.1 per cent.
• Rural exports fell by 4.2 per cent in August while non-rural exports fell by 0.1 per cent.
• Within imports, consumer imports fell by 0.9 per cent in August with capital goods imports up by 5.9 while intermediate goods imports fell by 8.7 per cent.
• Consumer goods imports are down 2.6 per cent on a year ago while capital goods imports are down by 8.2 per cent and intermediate goods imports are down by 3.3 per cent.
• The net services deficit narrowed marginally by $26 million to $878 million in August.
• Australia’s exports to China eased further from record highs, posting earnings of $98.5 billion in the year to August. And down from a record $100.6 billion in the year to April. Annual exports were up 19.1 per cent on a year ago and accounted for 36.13 per cent of Australia’s total exports, just down from a record high of 36.73 per cent in the year to April.
• Australia exports to the US hit a near 5-year high of $10.42 billion in the year to August. The share of exports going to the US hit a 3½-year high of 3.82 per cent.
• Australia’s imports from China eased from a record $50.3 billion in the year to July to $50.0 billion in the year to August, up 10.2 per cent on a year ago and accounting for a record 19.99 per cent of Australia’s total imports.
• Australia’s rolling annual trade surplus with China stood at $48.5 billion in August, easing further from the record high of $51.1 billion in April.

Senate Economics Committee – Inquiry into Affordable Housing

• Reserve Bank Assistant Governor, Malcolm Edey, and Head of Financial Stability Department, Luci Ellis, appeared before the Senate Committee today. Their opening statement can be found here.
• To date, the transcript of the Senate hearing is not available.
• Key points:
• One key measure of affordability – the repayment on a typical new housing loan expressed as a ratio to disposable income – “has fluctuated around a broadly stable average over the past three decades, with average repayments varying between around 20 and 30 per cent of disposable incomes.”
• “the ratio of housing prices to incomes is at the top of its historical range; but…
  over time, this has been more than offset by falls in financing costs, so that the typical repayment burden as a share of income is not particularly high. This of course does not rule out affordability problems in particular market segments or for particular types of households.”
• The composition of housing finance has become unbalanced with investor demand dominating, especially in Sydney & Melbourne.
• The RBA officials stressed that no specific macro-prudential controls have been ruled in or out although restrictions on loan to valuation ratios (LVRs) were considered unlikely.
• The RBA officials were at pains to point out that the strength of investor housing demand was largely limited to Sydney and Melbourne. The key would be to devise controls that didn’t discourage new housing supply that was required to meet strong demand and lead to more sustainable growth of home prices.
• 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 monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.
• The Reserve Bank would be heartened by the second wind in dwelling approvals. Housing activity is no doubt supporting the overall lift in spending and will continue to absorb the weakness in mining investment.
• Overall the economy is on a solid footing and remains fundamentally sound. Given the low interest rate environment, falling Australian dollar and the lift in home prices, the Reserve Bank is likely to be watching for an improvement in labour market conditions before thinking about a lift in interest rates. We expect the Reserve Bank to maintain a neutral monetary policy stance, while keeping a close eye on the transition of growth from mining investment to other parts of the economy. Rates are expected to remain on hold over the rest of 2014.

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 monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

What are the implications for interest rates and investors?

• The Reserve Bank would be heartened by the second wind in dwelling approvals. Housing activity is no doubt supporting the overall lift in spending and will continue to absorb the weakness in mining investment.
•  Overall the economy is on a solid footing and remains fundamentally sound. Given the low interest rate environment, falling Australian dollar and the lift in home prices, the Reserve Bank is likely to be watching for an improvement in labour market conditions before thinking about a lift in interest rates. We expect the Reserve Bank to maintain a neutral monetary policy stance, while keeping a close eye on the transition of growth from mining investment to other parts of the economy. Rates are expected to remain on hold over the rest of 2014.

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Financial Accounts; Population; Job Vacancies; Final Budget Outcome

• Household wealth stood at a record $7,780.6 billion at the end of June, up $97.4 billion or 1.3 per cent over the quarter. In per capita terms, wealth rose to a record $330,841 in the June quarter, up $2,860 over the quarter
• Population: Australia’s population grew by 111,500 people over the March quarter to 23,452,700. Annual population growth eased from 1.72 per cent to 1.69 per cent. Population growth is above decade averages in just NSW (32 per cent above decade averages) and Victoria (14 per cent above decade averages).
• Baby boom: In the year to March, 306,500 babies were born, just shy of the record 312,200 babies born in the year to September 2013. A total of 231,500 people migrated to Australia over year to March, well off the low of 172,100 in the year to December 2010.
• Job vacancies: Job vacancies fell by 0.7 per cent in the three months to August – the first fall in three quarters. Job Vacancies are up 4.1 per cent on a year ago.
• The final Federal Budget deficit for 2013/14 was $48.5 billion. The result was inflated by the contribution to bolster the Reserve Bank’s balance sheet.
• The Reserve Bank Governor was a panel discussant at the Melbourne Economic Forum. The Governor once again reiterated the concerns about the lift in house prices and “unbalanced” investor demand. The Governor was sceptical about using macroprudential tools “as a panacea” but is open to using them to ensure sustainable housing and  lending practices.

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• 

  Consumer sentiment has lifted.

  Economy-wide spending grew at “normal” pace in August, moving the sales expansion into the fourth year. The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by 0.5 per cent in trend terms in August – in line with the long-term average growth pace. Sales have grown consistently over the past 37 months.

• The more volatile seasonally adjusted estimate of spending rose by 0.8 per cent in August, the fifth gain in six months and following on from a 1.6 per cent lift in July sales. Annual growth in sales eased from 11.9 per cent to 9.9 per cent – but above the 6.4 per cent long-term average.
• The seasonally adjusted and trend estimates of the BSI results are derived via the SEASABS statistical program from the Australian Bureau of Statistics.
• At a sectoral level, only four of the 19 industry sectors contracted in trend terms in August, up from three sectors in both June and July. But sales only fell in one of the State & territories in August.
• The Commonwealth BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. The BSI covers spending broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines.

What does it all mean?

• Aussie consumers are getting on with life. Consumer sentiment has lifted, wealth is near record highs, dividends are boosting family incomes and jobs are being created.
• Retailers still have some work to do to convert better consumer sentiment to increased sales. There is so much competition from businesses across Australia and across the world, so the offering needs to stand out in quality and price. But household disposable income lifted by 4.7 per cent in the year to June – the fastest growth in two years. Wage growth is more modest but wages only account for 55 per cent of household income.
• The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, grew for the 37th straight month in August. While trend growth of 0.5 per cent in the month was in line with the long-term average pace of growth, it was the weakest growth since July 2013.
• In annual terms, the BSI continued to grow above the long-term average or normal growth pace. In August the BSI was up by 9.8 per cent on a year earlier, up from 9.5 per cent in June and 9.7 per cent in July but above the 6.2 per cent long-term average growth pace.
• The seasonally-adjusted measure of sales rose by 0.8 per cent in August, down from a revised 1.6 per cent lift in July (originally reported as 1.7 per cent) and the seventh gain in nine months. Annual growth eased from a six-month high of 11.9 per cent to 9.9 per cent in August.
• 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, spending fell in just four of the 19 industry sectors in trend terms in August: Utilities (down 1.7 per cent); Clothing Stores (down 1.4 per cent); Amusement & Entertainment (down 0.2 per cent); and Automobile/Vehicle Rentals (down 0.1 per cent).
• Amongst the strongest sectors in August were, Service Providers (up 4.0 per cent); Mail Order/Telephone Order Providers (up 2.3 per cent); Airlines (up 1.9 per cent); and Miscellaneous Stores (up 1.4 per cent).
• In annual terms in August, only three of the 19 industry sectors contracted: Utilities, Automobile/Vehicle Rentals, and Clothing Stores.
• At the other end of the scale, sectors with strongest annual growth in August included Amusement & Entertainment; Hotels & Motels; Mail Order/Telephone Order Providers; and Transportation.
• Across the states and territories, sales rose in August in trend terms in all but the ACT (down 0.1 per cent).
• Of the other states & territories, leading the gains was South Australia (up 1.4 per cent), followed by Queensland (up 1.1 per cent) Tasmania (up 1.0 per cent); NSW (up 0.5 per cent), Victoria (up 0.4 per cent), Northern Territory (up by 0.2 per cent) and Western Australia (up by 0.1 per cent).
• The trend BSI has now risen for 38 straight months in Queensland, for 30 months in Tasmania, for 24 months in NSW and for 23 months in South Australia. Sales in Victoria have been either flat or higher for 38 consecutive months
• In annual terms, only the ACT had sales below a year ago. At the other end of the scale, growth was strongest in South Australia, Queensland, Tasmania and NSW.
• 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 economy is showing positive signs but the Reserve Bank will be in no rush to change interest rate settings.
• With wages growing at a slower rate than prices, retailers will continue to find the going tough.

What does the data show?

• The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, grew for the 37th straight month in August. While trend growth of 0.5 per cent in the month was in line with the long-term average pace of growth, it was the weakest growth since July 2013.
• In annual terms, the BSI continued to grow above the long-term average or normal growth pace. In August the BSI was up by 9.8 per cent on a year earlier, up from 9.5 per cent in June and 9.7 per cent in July but above the 6.2 per cent long-term average growth pace.
• The seasonally-adjusted measure of sales rose by 0.8 per cent in August, down from a revised 1.6 per cent lift in July (originally reported as 1.7 per cent) and the seventh gain in nine months. Annual growth eased from a six-month high of 11.9 per cent to 9.9 per cent in August.
• 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, spending fell in just four of the 19 industry sectors in trend terms in August: Utilities (down 1.7 per cent); Clothing Stores (down 1.4 per cent); Amusement & Entertainment (down 0.2 per cent); and Automobile/Vehicle Rentals (down 0.1 per cent).
• Amongst the strongest sectors in August were, Service Providers (up 4.0 per cent); Mail Order/Telephone Order Providers (up 2.3 per cent); Airlines (up 1.9 per cent); and Miscellaneous Stores (up 1.4 per cent).
• In annual terms in August, only three of the 19 industry sectors contracted: Utilities, Automobile/Vehicle Rentals, and Clothing Stores.
• At the other end of the scale, sectors with strongest annual growth in August included Amusement & Entertainment; Hotels & Motels; Mail Order/Telephone Order Providers; and Transportation.
• Across the states and territories, sales rose in August in trend terms in all but the ACT (down 0.1 per cent).
• Of the other states & territories, leading the gains was South Australia (up 1.4 per cent), followed by Queensland (up 1.1 per cent) Tasmania (up 1.0 per cent); NSW (up 0.5 per cent), Victoria (up 0.4 per cent), Northern Territory (up by 0.2 per cent) and Western Australia (up by 0.1 per cent).
• The trend BSI has now risen for 38 straight months in Queensland, for 30 months in Tasmania, for 24 months in NSW and for 23 months in South Australia. Sales in Victoria have been either flat or higher for 38 consecutive months
• In annual terms, only the ACT had sales below a year ago. At the other end of the scale, growth was strongest in South Australia, Queensland, Tasmania and NSW.

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 economy is showing positive signs but the Reserve Bank will be in no rush to change interest rate settings.
• With wages growing at a slower rate than prices, retailers will continue to find the going tough.

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• 

  Asian shares take a slide.

  Petrol prices rise: According to the Australian Institute of Petroleum, the national average Australian price of petrol rose by 2.8 cents per litre to 147.6 cents a litre in the week to September 21.

• Asian shares slide: Asian sharemarkets fell by over 1 per cent on Monday.

What does it all mean?

• Perhaps there needs to be a degree course in petrol price analysis. Across the major capital cities, petrol prices are moving in different directions while in Darwin, Hobart and regional areas, petrol prices are stubbornly stable.
• Overall though, motorists in capital cities are still enjoying historically-low prices. The good news is that the world is well supplied with oil. The bad news is that OPEC oil producers are seeking to cut back production. While for local motorists, the weaker Aussie dollar is serving to push prices modestly higher.
• Sharemarkets across Asia were sharply lower on Monday with analysts scratching for reasons behind the sell-off. Fears that the US Federal Reserve could tighten monetary policy earlier than previously expected have been weighing on markets for the past few weeks. The term ‘Taper Tantrum’ is quite apt. Higher interest rates would attract investment funds to the US, while higher rates act to restrain a “growth region” like Asia.
• Also not helping proceedings have been comments from China’s Finance Minister. In Cairns for the G20 finance ministers meeting, Lou Jiwei said on Sunday “China will not make major policy adjustments due to a change in any one economic indicator”. He was referring to the weak industrial production reading for August, seemingly ruling out major stimulus to counter-act the slowdown. At time of writing, Australian shares were down 1.3 per cent with Hong Kong down 1.3%, Japan down 0.8 per cent, Korea down 0.9 per cent and China’s Shanghai composite down 1.5 per cent.

What do the figures show?

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 2.8 cents a litre to 147.6 c/l in the week to September 21. The increase in prices reflected the lift from the low point in the discounting cycles in Sydney and Melbourne. The metropolitan price rose by 4.0 cents to 145.8 c/l, while the regional average price rose by 0.3 cents to 151.3 c/l.
• The national average Australian price of diesel petrol was unchanged at 154.9c/l in the week to September 21. The metropolitan price fell by 0.3 cents to 152.6 c/l, while the regional average price fell by 0.5 cents to 156.1 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 8.1 cents to 145.9 c/l), Melbourne (up by 7.1 cents to 142.5 c/l), Brisbane (up by 0.8 cents to 150.3 c/l), Adelaide (down by 4.3 cents to 140.1 c/l), Perth (up by 0.6 cents to 144.6 c/l), Darwin (unchanged at 173.0 c/l), Canberra (down 0.1 c/l to 154.7 c/l) and Hobart (down 0.1 c/l to 158.3 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 137.7 c/l, up 1.7 cents over the week and up by 3.2 cents a litre up on the 15-month low of 134.5 cents set on August 25.
• Last week the key Singapore gasoline price fell by US$2.85 to US$108.85 a barrel – just off the lowest levels in 17 months. In Australian dollar terms the Singapore gasoline price fell by $1.89 a barrel or 1.5 per cent last week to $121.40 a barrel or 76.35 cents a litre.
• Figures from MotorMouth show that petrol prices have been mixed across capital cities. In Sydney, prices hit lows on September 5 and have drifted higher, hitting a two-month high on September 20. In Melbourne, prices troughed on September 12 and now stand at one-month highs. In Brisbane prices peaked on September 13 and have since fallen. And in Adelaide prices peaked on September 14 and have since fallen.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
• Consumers are finding conditions quite fluky at present. Petrol discounting cycles have changed in southern and eastern states; the Aussie dollar has softened; and wage growth is modest. But, on the other hand, home buyers are active in refinancing loans to unleash spending power; companies are paying out bigger dividends; and disposable incomes of households are up 4.7 per cent on a year ago – the fastest growth in two years.
• Overall, though, there is still no pressing reason for the Reserve Bank to change interest rate settings.
• The Australian sharemarket has become dearer over July-September, so the current correction is healthy in a longer-term sense. The forward price-earnings ratio has been above the decade average for the past six months. And at levels near 15.54, the price earnings ratio still has further to fall to reach the decade average of 14.86.
• The “normalisation” of US interest rates was always going to be a little bumpy, and some of those speed humps are currently been navigated. But the strength of the recent profit-reporting season has left Australian companies in good shape to ride any volatility, especially the high cash levels being maintained by Corporate Australia.
• Between February 1994 and February 1995, the US Federal Reserve lifted the funds rate from 3 per cent to 6 per cent. Between June 1994 and June 1995, the Japanese sharemarket fell 33 per cent. Between May 1994 and February 1995 the Australian All Ordinaries lost 15 per cent. Between February 1994 and February 1995, the Hang Seng fell by 43 per cent. Janet Yellen assures that the path of rates hasn’t been decided but investors aren’t convinced.

Why is the data important?

• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

What are the implications?

• Consumers are finding conditions quite fluky at present. Petrol discounting cycles have changed in southern and eastern states; the Aussie dollar has softened; and wage growth is modest. But, on the other hand, home buyers are active in refinancing loans to unleash spending power; companies are paying out bigger dividends; and disposable incomes of households are up 4.7 per cent on a year ago – the fastest growth in two years.
• Overall, though, there is still no pressing reason for the Reserve Bank to change interest rate settings.
• The Australian sharemarket has become dearer over July-September, so the current correction is healthy in a longer-term sense. The forward price-earnings ratio has been above the decade average for the past six months. And at levels near 15.54, the price earnings ratio still has further to fall to reach the decade average of 14.86.
• The “normalisation” of US interest rates was always going to be a little bumpy, and some of those speed humps are currently been navigated. But the strength of the recent profit-reporting season has left Australian companies in good shape to ride any volatility, especially the high cash levels being maintained by Corporate Australia.
• Between February 1994 and February 1995, the US Federal Reserve lifted the funds rate from 3 per cent to 6 per cent. Between June 1994 and June 1995, the Japanese sharemarket fell 33 per cent. Between May 1994 and February 1995 the Australian All Ordinaries lost 15 per cent. Between February 1994 and February 1995, the Hang Seng fell by 43 per cent. Janet Yellen assures that the path of rates hasn’t been decided but investors aren’t convinced.

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• Industry employment: Employment rose by 119,800 over the three months to August – the biggest quarterly increase in over almost a decade (since November 2004).
• Mining jobs fall: Mining employment fell by a record 27,100 jobs in the August quarter.
• More jobs in Education than Manufacturing. The number of people employed in the Education & Training sector now exceeds those employed in Manufacturing for the first time.

What does it all mean?

• The baton continues to be passed from mining to other parts of the economy. In the past three months, a record 27,100 jobs were lost in mining after falls in the previous six months. But more importantly, the jobs lost in mining and parts of the public service are being more than absorbed in other parts of the economy.
• The latest data confirms large scale job creation in the three months to August with more jobs created than at any three month period in a decade. More people in jobs, means more spending and therefore more momentum for the economy.
• Many Australians are still rubbing their eyes about the extent of job creation in the economy. But it is important to note that 97 per cent of businesses in the economy employ less than 20 people (88 per cent have less than four staff). And if small and medium-sized business picks up an extra worker here and an extra worker there, it all adds up.
• The Reserve Bank won’t be in a rush to change monetary policy settings. The RBA wants to ensure that the ‘baton change’ goes seamlessly and will make sure the baton isn’t dropped along the way.
• Australia continues to change from a manufacturing nation to that focussed on services. Thirty years ago manufacturing employed double the number of jobs as the education sector. Even a decade ago there were 30 per cent more people in manufacturing than education. Hopefully this new focus on education and training means a regular supply of productive staff for businesses.

What does the data show?

Industry employment:

• Economy-wide employment rose by 119,800 in the three months to August 2014 – the fastest growth in almost a decade (since the three months to November 2004). Over the year jobs rose by 252,500 – the most in three years.
• Employment rose in 13 of the 19 industry sectors. Employment rose most in Education & Training (up 31,800), followed by Health Care & Social Assistance (up 30,400) and Retail Trade (up 26,200).
• In the quarter, jobs fell the most in Mining (down by a record 27,100) followed by Administrative and Support Services (down by 23,400) and Public Administration and Safety (down by 14,900)
• Healthcare remains the biggest employer with 1.42 million employees (12.2 per cent of the total) followed by Retail Trade (1.26 million jobs or 10.8 per cent) and Construction (1.05 million or 9.0 per cent).
• Education & Training sector has passed Manufacturing for the first time in terms of people employed. Education & Training is the fifth largest employer with 937,600 jobs with Manufacturing at 917,900 jobs.

What is the importance of the report?

• The Australian Bureau of Statistics (ABS) provides detailed labour market figures one week after releasing ‘top level’ statistics of employment & unemployment levels across states and territories. The detailed data is useful in identifying broader underlying trends and instructive about the health of the economy.
• In the broader (macro) economy, the job market trends are positive. More in jobs, and more businesses looking for staff. The lift in productivity and weak wage growth are further positives for the hiring of staff. And more people in work, means more spending. Jobs lost in some sectors are being picked up in others.
• But at a regional level, the changes in the job market mean a degree of pain is being felt. Mining regions are shedding jobs, causing workers to travel farther afield to get jobs or to shift into other industries such as construction.
• The Reserve Bank will continue to monitor the ‘baton change’ but it must be happy with what it sees. Rates clearly won’t be cut in coming months, but it is still too early to talk about rate hikes, especially with inflation well contained.

What are the implications for interest rates and investors?

• In the broader (macro) economy, the job market trends are positive. More in jobs, and more businesses looking for staff. The lift in productivity and weak wage growth are further positives for the hiring of staff. And more people in work, means more spending. Jobs lost in some sectors are being picked up in others.
• But at a regional level, the changes in the job market mean a degree of pain is being felt. Mining regions are shedding jobs, causing workers to travel farther afield to get jobs or to shift into other industries such as construction.
• The Reserve Bank will continue to monitor the ‘baton change’ but it must be happy with what it sees. Rates clearly won’t be cut in coming months, but it is still too early to talk about rate hikes, especially with inflation well contained.

The post Jobs up most in a decade, but record fall in mining appeared first on AdviserVoice.

• Volatility ahead of key events: Currency and share markets have exhibited volatility in recent days ahead the Scottish referendum and the US Federal Reserve meeting to decide interest rate settings.
• Less volatile Aussie shares over time: While the sharemarket has proved weaker and a little more volatile in recent days, volatility is still historically low. Over the past year the ASX 200 has only traded up or down by more than 1 per cent on only 30 days, the lowest result since January 2006 – almost 9 years.
• Chinese stimulus: There are reports that China’s central bank has boosted liquidity at the biggest five banks.
• Imports down: Imports of goods fell by 3 per cent in seasonally adjusted terms in August.

The US central bank decision and Scottish referendum have implications for currency-sensitive businesses. The Chinese stimulus is important for resource companies. The imports data provide insights on retailers. The Chinese coal decision has implications for Australian coal producers.

The US, Scotland & China

• Up until recent days, there had been growing speculation that the US central bank could signal an earlier start to the rate hiking cycle. But that perception appears to have been turned on its head in the last 24 hours, in part due to the views of a prominent Fed watcher, Jon Hilsenrath of the Wall Street Journal. Hilsenrath believes that the Federal Reserve won’t dramatically change the language in the statement that outlines the interest rate decision. In particular, Hilsenrath believes there will be no change in a key paragraph:
• “The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”
• Central banks have in the past have used certain “mouth-pieces” in the media to signal future intentions in order to reduce uncertainty and volatility. But the views of the Wall Street Journal Fed watcher are in line with a number of other key analysts. CBA strategists are in accord with these views, believing the Federal Reserve is unlikely to start lifting interest rates until around mid-2015.
• The Fed decision will be crucial for the short-term outlook of share and currency markets. Overnight, the US Dow Jones went within seven points of closing at record highs, lifting almost 101 points over the session.
• The other news overnight were reports that China’s central bank, the People’s Bank of China, was set to add 500 billion yuan in liquidity for the top five banks through standing lending facilities. The Aussie dollar rose from lows near US90 cents to highs around US91.10 cents.
• Uncertainty about the Scottish referendum result also remains a key factor influencing financial markets at present. But given the result is on knife’s edge, the referendum is more a background issue, making investors less keen to take on fresh positions until the final outcome is known, potentially on Friday.
• The Aussie dollar hit the lowest levels in around six months on Monday, below US 90 cents. But the foray below the psychologically-important level has proved brief for now. While the Aussie dollar has come under pressure from a stronger greenback (on rate hike fears) and softer Chinese economic data, the longer-run pressure has come from lower commodity prices. The key CRB futures commodity index hit a 9-month low on September 15, before recovering modestly overnight, up by 0.9 per cent.
• Many analysts would argue that the Aussie dollar is now at a more appropriate level given recent trends of commodity prices. But the Aussie is by no means the weakest global currency in 2014. The Aussie is actually up 1.6 per cent from the start of the year, making it the seventh best performing currency against the greenback.

Aussie dollar: Big picture

• The Aussie dollar hit the lowest levels in around six months on Monday, below US 90 cents. But the foray below the psychologically-important level has proved brief for now. While the Aussie dollar has come under pressure from a stronger greenback (on rate hike fears) and softer Chinese economic data, the longer-run pressure has come from lower commodity prices. The key CRB futures commodity index hit a 9-month low on September 15, before recovering modestly overnight, up by 0.9 per cent.
• Many analysts would argue that the Aussie dollar is now at a more appropriate level given recent trends of commodity prices. But the Aussie is by no means the weakest global currency in 2014. The Aussie is actually up 1.6 per cent from the start of the year, making it the seventh best performing currency against the greenback.

More bad news for coal

• China’s National Development and Reform Commission said that the country will ban the import and local sale of coal with high ash and sulphur content starting from 2015 in a bid to tackle air pollution. While Australia’s Mineral Council believes that mines can adapt to meet the restrictions, there are significant exports and regional economies affected. According to consultants Wood Mackenzie, China imported 54 million tonnes of thermal coal and 30 million tonnes of metallurgical coal from Australia in 2013. Wood Mackenzie says all the thermal coal exceeded the new ash limit, while the metallurgical coal was below the limit.
• Given that a high proportion of economy-wide spending is on imported goods, the latest data is worth noting. The Australian Bureau of Statistics report that “In seasonally adjusted terms, goods debits fell $677 million (3 per cent) between July and August 2014 to $21,423m. Intermediate and other merchandise goods fell $878m (9 per cent), consumption goods fell $65m (1 per cent) and non-monetary gold fell $25m (10 per cent). Capital goods rose $292m (6 per cent).”
• Annualised imports from Japan are currently at 3-year lows, down 5.4 per cent on a year ago, while imports from China are growing at the slowest annual pace for five months.
• There are a few balls in the air at present for investors. Still, for traders of shares or the Aussie dollar, the volatility is probably welcome – certainly sharemarket volatility is near 9-year lows. For longer-term investors, the good news is that once we move into a new week, a lot of uncertainty will be resolved. The Scottish issue will hopefully be settled, the next US interest rate decision won’t occur until October 28/29 and the next batch of Chinese economic data won’t occur until early-mid October. And in Australia, the profit-reporting season is out of the way while the Reserve Bank won’t be moving interest rates any time soon.
• In the coming week the major domestic focus is the Financial Stability Review on Wednesday while the key international events are “flash” manufacturing readings for the US, Europe and China on Tuesday.

Australian economic data: Imports

• Given that a high proportion of economy-wide spending is on imported goods, the latest data is worth noting. The Australian Bureau of Statistics report that “In seasonally adjusted terms, goods debits fell $677 million (3 per cent) between July and August 2014 to $21,423m. Intermediate and other merchandise goods fell $878m (9 per cent), consumption goods fell $65m (1 per cent) and non-monetary gold fell $25m (10 per cent). Capital goods rose $292m (6 per cent).”
• Annualised imports from Japan are currently at 3-year lows, down 5.4 per cent on a year ago, while imports from China are growing at the slowest annual pace for five months.

What are the implications for interest rates and investors?

• There are a few balls in the air at present for investors. Still, for traders of shares or the Aussie dollar, the volatility is probably welcome – certainly sharemarket volatility is near 9-year lows. For longer-term investors, the good news is that once we move into a new week, a lot of uncertainty will be resolved. The Scottish issue will hopefully be settled, the next US interest rate decision won’t occur until October 28/29 and the next batch of Chinese economic data won’t occur until early-mid October. And in Australia, the profit-reporting season is out of the way while the Reserve Bank won’t be moving interest rates any time soon.
• In the coming week the major domestic focus is the Financial Stability Review on Wednesday while the key international events are “flash” manufacturing readings for the US, Europe and China on Tuesday.

The post Jitters ahead of US rate decision appeared first on AdviserVoice.

• 

  Chinese growth drivers are shifting from industrial production to household spending.

  Chinese economic data: Industrial production rose at a 6.9 per cent annual rate in August, the slowest growth in 5½ years (December 2008) and below forecasts. Retail sales rose at an 11.9 per cent annual rate in August, mildly below forecasts (+12.1 per cent). Real annual growth was estimated at 10.6 per cent – the fastest growth in eight months. And urban investment in the first eight months of 2014 was up 16.5 per cent on a year ago (forecast +16.9 per cent).

• Previously released Chinese data showed: Consumer prices rose by 2.0 per cent over the year to August; Producer prices fell by 1.2 per cent over the year to August; the Chinese trade balance improved from a surplus of US$47.3 billion in July to a record high surplus of US$49.83 billion in August.

What does it all mean?

• It seems that every country is experiencing a transition of sorts. In China, the growth drivers are shifting from industrial production to household spending. In Australia, the growth drivers are shifting from mining construction to home building and resource exports. And in the US, a transition will soon start from money printing and zero interest rates to a more “normal” monetary policy situation. The point is that these transitions may or may not go to plan. So policymakers need to tread warily.
• There is no doubt the drop in Chinese production growth comes as a surprise. Usually economic data is not too far away from forecasts – that certainly was the case for all the other monthly variables in August. Of course surprises can happen – witness Australian employment figures over the past few months.
• While production is now growing at the slowest pace in 5½ years, the good news is that policymakers are in a position to provide “targeted” stimulus with inflation under control. The other good news is that retail sales rose at the fastest pace in real terms in eight months. So the ‘baton pass’ is occurring, the hope being is that it remains a smooth change.

 What does the data show?

Chinese economic data

• Industrial production rose at a 6.9 per cent annual rate in August, the slowest growth since December 2008, below the forecast average (8.8 per cent) and down from the 9.0 per cent annual rate in July. Production was up by 8.5 per cent on a year ago for the first eight months of 2014.
• In August pig iron production was up 0.2 per cent on a year ago with thermal power capacity down 11.3 per cent; computer equipment down 8.5 per cent; mobile phones down 2.3 per cent; flat glass down 3.8 per cent. But power generating equipment was up 26.3 per cent. Also of note steel was up 2.4 per cent, oil production rose 4.4 per cent and autos were up 3.1 per cent.
• Retail sales rose at an 11.9 per cent annual rate in August, mildly below forecasts (+12.1 per cent) and down from the 12.2 per cent annual rate in July. Over 2014, annual growth has averaged 12.1 per cent. But in real terms, spending was up 10.6 per cent in August – the fastest growth in eight months. Weakest growth in August was in car sales, up by just 5.3 per cent. But communications equipment was up 31.8 per cent with medicines up 16.5 per cent.
• In August, retail sales rose 0.92 per cent, the fastest growth in three months and in line with the average monthly growth recorded over 2014.
• Urban investment rose at a 16.5 per cent annual rate in the first eight months of 2014, below forecasts of a 16.9 per cent increase and below the 17.0 per cent growth recorded for the seven months to July.

Previously released Chinese data

• The M2 money supply measure rose by 12.8 per cent in the year to August, short of the forecast growth of 13.4 per cent and down from 13.5 per cent in July.
• New Yuan lending totalled 702.5 billion in August, above forecasts of 700 billion Yuan and up from 385.2 billion Yuan in July.
• Outstanding loans grew at a 13.3 per cent annual rate in August, up from the expected 13.2 per cent rise but down from the 13.4 per cent growth in the year to July.
• The Chinese trade surplus rose from US$47.3 billion to a record high of US$49.8 billion in August. Economists had forecast a US$40 billion surplus. Exports were up 9.4 per cent on a year ago (forecast +8.0 per cent) while imports fell 2.4 per cent (forecast +1.7 per cent). In July, exports were up 14.5 per cent on a year earlier with imports down 1.6 per cent.
• China’s consumer prices rose by 2.0 per cent over the year to August while producer prices fell by 1.2 per cent over the same period. Both results were softer than economist forecasts.
• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10^th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy
• The Reserve Bank has even more reason to stay on the interest rate sidelines. Just like in Australia, there is a transition in China from production-fuelled growth to that driven by retail spending. There could be blips along the way. And slower Chinese production should lead to a weaker Australian dollar, providing stimulus to Australian businesses, especially exporters and manufacturers.

What is the importance of the economic data?

• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10^th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy

What are the implications for interest rates and investors?

• The Reserve Bank has even more reason to stay on the interest rate sidelines. Just like in Australia, there is a transition in China from production-fuelled growth to that driven by retail spending. There could be blips along the way. And slower Chinese production should lead to a weaker Australian dollar, providing stimulus to Australian businesses, especially exporters and manufacturers.

The post Shock slump in Chinese production growth appeared first on AdviserVoice.

• 

  Employment growth surpassed optimistic expectations.

  Jobs gains: Employment rose by a record high 121,000 in August after falling by a revised 4,100 in July (previously reported as a 300 fall in jobs). Full-time jobs rose by 14,300 in August after rising by 15,400 in July. Part-time jobs rose by 106,700 in August after falling by 4,100 in July.

• A total of 236,500 new jobs have been created in the first eight months of 2014 – the best start to a calendar year since 2005.
• Jobless rate slides: The unemployment rate fell from 6.4 per cent to 6.1 per cent in August. The participation rate rose from 64.9 per cent to 65.2 per cent.
• Hours worked was unchanged in August after falling by 1.0 per cent in July. Hours worked are up 0.6 per cent over the year.
• Tame Chinese inflation: Producer prices fell by 1.2 per cent in the year to August (median forecast was for a 1.1 per cent decline). Consumer prices rose by 2.0 per cent over the year (median forecast 2.2 per cent).
• In August, consumer prices rose by 0.2 per cent. Producer prices fell by 0.2 per cent.

What does it all mean?

• Employment growth surpassed even our rather optimistic expectations. Part time jobs growth of over 106,000 jobs or a record total (part time plus full-time) 121,000 jobs in one month? Well it is hard to take this at face value, and no doubt there is some level of statistical discrepancy. But it does resonate with the lift in the employment landscape conditions over the past year. And more importantly rather than focusing on one month’s data the broader trend shows a similar picture.
• Last year employers were working existing staff longer and there had been a lift in productivity, while it is now clear that employers are adding to the workforce – whether it is part time or full-time roles. In fact jobs growth has been solid with almost 127,000 full-time jobs having been created in the first eight months of 2014 – marking the best start to a calendar year in four years.
• The one key positive out of the super-strong result is that it should ease concerns about the labour market. All the noise about the prior result – 12–year high unemployment rate in July- dampened consumer confidence. However this time round despite the lift in the participation rate – which suggests more people are looking for work – the unemployment rate eased back to 6.1 per cent. The latest result should help to ease some of those concerns. An improvement in confidence would certainly bode well for retail activity and broader economic growth.
• Labour market conditions have certainly improved in recent months. Business conditions are healthy, profitability has improved and more importantly forward order books are starting to fill up. No doubt the business sector is feeling more comfortable hiring as can be seen by the ongoing lift in job advertisements. More people are looking for work and more people are finding work as well – a result that should increase household incomes.
• The Reserve Bank would certainly be feeling a bit more comfortable. It’s all running pretty much to plan. Even the recent US dollar strength has resulted in the Aussie dollar falling to a six-month low. Clearly the Reserve Bank has no need to be moving rates in any direction at present. The earliest timing of the first rate hike is February next year, but it requires a further improvement in activity levels and a stronger lift in employment.
• Chinese inflation remains benign and is certainly no threat to the broader Chinese economy. Consumer inflation is healthy without being excessive and business inflation is still contracting. More importantly the data in recent weeks suggests the Chinese economy has found a solid base and has lifted after a lacklustre start to the year. If growth doesn’t rebound Chinese authorities are certainly well placed to provide further stimulus.Focus will shift to the retail sales, industrial production and fixed asset investment figures due out on Saturday.

What do the figures show?

Labour force:

• Employment rose by a record high 121,000 in August after falling by a revised 4,100 in July (previously reported as a 300 fall in jobs). Full-time jobs rose by 14,300 in August after rising by 15,400 in July. Part-time jobs rose by 106,700 in August after falling by 4,100 in July.
• The unemployment rate fell from 6.4 per cent to 6.1 per cent in August. The participation rate rose from 64.9 per cent to 65.2 per cent.
• The number of hours worked was unchanged in August after falling by 1.0 per cent in July. Hours worked are up 0.6 per cent over the year.
• The annual employment growth rate rose from 0.9 per cent to 2.2 per cent in August. The working age population grew by 26,100 people in August and by 3441,700 over the year or 1.82 per cent.
• Unemployment across states and territories: NSW 5.7 per cent (July 5.9 per cent); Victoria 6.8 per cent (7.0 per cent); Queensland 6.7 per cent (6.8 per cent); South Australia 5.9 per cent (7.2 per cent); Western Australia 5.0 per cent (5.2 per cent); Tasmania 7.1 per cent (7.6 per cent). Trend unemployment Northern Territory 4.8 per cent (4.6 per cent); ACT 4.6 per cent (4.3 per cent).
• Jobs across states and territories: NSW +45,300; Victoria +26,100; Queensland +26,500; South Australia +16,800; Western Australia +9,600; Tasmania +3,800. Trend employment Northern Territory +200; ACT +700.

Chinese inflation data

• The annual rate of consumer price inflation fell from 2.3 per cent in July to 2.0 per cent in August. The result was below forecasts for annual growth of 2.2 per cent. Over the month consumer prices rose by 0.2 per cent, mildly weaker than forecasts.
• Food prices rose by 0.7 per cent in August after falling by 0.1 per cent in July with non-food prices down 0.1 per cent in August. Pork prices lifted by a much more sedate 0.1 per cent in August. Over the year to August, food prices rose by 3 per cent while non-food prices were up by 1.5 per cent.
• Annual price growth: Clothing prices rose by 2.6 per cent in the year to August; tobacco & liquor prices fell 0.6 per cent annually; transport & communications rose 0.2 per cent annually; household equipment & maintenance prices were up 1.1 per cent annually; healthcare & personal products rose by 1.4 per cent annually; entertainment & educational rose 1.9 per cent annually.
• Producer prices (business inflation) fell by 0.2 per cent in August. Producer prices in August were 1.2 per cent lower than a year ago. Economists had tipped a 1.1 per cent annual decline.
• The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel.
• If more people are employed, then there is greater spending power in the economy. But at the same time companies may adjust the work hours of employees. If employees work less hours, and therefore get paid less, then spending power in the economy is reduced.
• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10^th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.
• In the past, employment data has been volatile around turning points, but clearly the last eight months of jobs growth suggest an improvement in labour market conditions, despite the likely statistical discrepancies job creation. Hopefully the focus in the latest data will centre on the ongoing lift in employment from a broader perspective than just one month’s data.
• RBA business liaisons have commented on the noticeable lift in business hiring intentions and it suggests labour market conditions are heading in the right direction. Employers are working existing staff harder but as profitability improves, management will feel more comfortable increasing head count.
• Clearly the Reserve Bank has no need to be moving rates in any direction at present.

Why is the data important?

• The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel.
• If more people are employed, then there is greater spending power in the economy. But at the same time companies may adjust the work hours of employees. If employees work less hours, and therefore get paid less, then spending power in the economy is reduced.
• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10^th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.

What are the implications?

• In the past, employment data has been volatile around turning points, but clearly the last eight months of jobs growth suggest an improvement in labour market conditions, despite the likely statistical discrepancies job creation. Hopefully the focus in the latest data will centre on the ongoing lift in employment from a broader perspective than just one month’s data.
• RBA business liaisons have commented on the noticeable lift in business hiring intentions and it suggests labour market conditions are heading in the right direction. Employers are working existing staff harder but as profitability improves, management will feel more comfortable increasing head count.
• Clearly the Reserve Bank has no need to be moving rates in any direction at present.

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• 

  Home lending on the rise.

  The number of new owner-occupier housing loans (commitments) was up by 0.3 per cent in July but the value was unchanged. Excluding the refinancing of dwellings, the number of loans was down by 0.7 per cent. The value of all investment and owner-occupier loans rose by 2.7 per cent – the biggest rise in five months.

• The share of first-time buyers in the market fell from 13.2 per cent in June to a record low of 12.2 per cent in July. The value of refinanced existing home loans rose by 3.1 per cent to a record high in July – freeing up additional spending power for consumers.
• Fixed rate loans fell from 14.3 per cent to a 17-month low of 13.7 per cent of all loans in July. And the average home loan across Australia stood at $327,500 in July, up 9.0 per cent on a year ago – the fastest annual increase in four years.
• Business conditions and confidence: The NAB business confidence index fell from +9.6 points to +7.8 points in August. The business conditions index eased from a four –year high of +8.1 points to +3.5 points. The survey was conducted from August 25 to September 3.
• Consumer confidence lifts: The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.6 per cent in the week to September 7. The confidence rating is down just 2.6 per cent on the 7-month highs recorded for the week to July 27.

What does it all mean?

• The housing sector has shown that it is the shining light of the Australian economy. And with interest rates low, population rising and housing affordability still attractive, housing is going to be the dominant sector driving growth over the next year. And importantly, home building will take the leadership role from mining as the nation’s key economic driver. The ongoing lift in housing approvals, rising new home sales, higher house prices will support confidence and provide policymakers with a degree of encouragement.
• But while investors are keen to pick up attractive income-producing assets, first home buyers are still reticent to wade in. Despite some of the most attractive buying conditions in years, the proportion of first home buyer loans is holding at the lowest level on record. There is anecdotal evidence that some first home buyers are being squeezed out by investors given tight housing supply. But the lower numbers of first home buyers also reflects the preference for young people to rent, rather than buy.
• While the rise in overall housing finance is positive, the key is the new home building market. Importantly, loans to build new homes have risen for ten out of the past 12 months and are up over 16 per cent on a year ago. An ongoing lift in construction finance would be beneficial for the broader economy given it is a key forward looking indicator. More homes being built over the medium term will provide additional support to overall economic growth while also increasing housing supply, and keeping a lid on aggressive house price growth.
• The business sector has certainly been more upbeat than consumers on the outlook for the Aussie economy. However it seems that a modest level of consolidation is now taking place. Business conditions have eased from four-year highs while confidence levels were tapered from 10-month highs. Overall the business environment remains relatively upbeat.
• Interestingly the business confidence readings have not been as volatile as those noted by consumers. If anything the business sector shrugged off the negative budget headlines and focussed on the big picture and it seems to be paying dividends. What is now required is a ongoing lift in business conditions – which would be good news for the job market. As profitability improves we would expect business to increase hours worked and hire additional labour.
• An improvement in labour market conditions would provide an additional boost to consumer confidence. The weekly Roy Morgan Consumer Confidence rating is down just 2.6 per cent on the 7-month highs recorded for the week to July 27. Consumers have become more optimistic on the prospects for household finances in recent weeks, with a particular lift in the survey on whether it was “a good time to buy major household item”.
• We would expect consumer confidence to lift further in coming months. As the strength in house prices and share markets come to the fore, more Aussies are likely to realise that the economy is in solid shape and interest rates are going nowhere. And more confident consumers should lead to better operating conditions for retailers.
• Overall, the Australian Reserve Bank is in a similar position to the US Federal Reserve. There is no pressing need at present to be tightening monetary policy. But the Australian economy is forming a solid base for future growth and therefore a base for more “normal” interest rates. However it is unlikely that interest rates will be lifted anytime this year.

What do the figures show?

National Australia Bank Business Survey:

• The NAB business confidence index fell from +9.6 points to +7.8 points in August. The business conditions index eased from a four –year high of +8.1 points to +3.5 points.
• The index of trading conditions weakened from +13.5 points to +6.6 points; employment weakened from 0 to -0.1 points; profitability weakened from +9.8 points to +3.3 points; forward orders weakened from +5.3 points to +0.7 points.
• Inflationary pressures were largely flat in August. The monthly reading of labour costs rose at a 0.7 per cent quarterly rate in August after a 0.9 per cent rise in July. Purchase costs rose at a 0.5 per cent quarterly rate in August, after a similar result in July. Final product prices rose by 0.2 per cent after a similar rise in July.Retail prices lifted 0.2 per cent in August, after a 0.8 per cent lift in July.
• Capacity utilisation eased from 81.0 to 80.7 in August, in line with the long-term average of 81.2 per cent.
• The proportion of firms reporting that they did not require credit eased from around 65 per cent in July to around 43 per cent in August.

Consumer sentiment:

• The ANZ/Roy Morgan consumer confidence rating rose by 0.6 per cent in the week to September 7 after easing by 0.8 per cent in the previous week. The confidence rating is down just 2.6 per cent on the 7-month highs recorded for the week to July 27.
• Two of the five components of the index rose in the latest week:
• The estimate of family finances compared with a year ago was up from +4 to +7;
• The estimate of family finances over the next year was down from +19 to +18;
• Economic conditions over the next 12 months was down from -4 to -5;
• Economic conditions over the next 5 years was steady at +9;
• The measure on whether it was a good time to buy a major household item was up from +35 to +38.

Housing Finance:

• The number of new owner-occupier housing loans (commitments) was up by 0.3 per cent in July. Excluding the refinancing of dwellings, the number of loans was down by 0.7 per cent.
• The number of loans by owner-occupiers for the construction of homes fell by 1.3 per cent in July – only the second fall in 12 months. The value of construction loans fell by 2.7 per cent in July after a 1.7 per cent lift in June.
• The number of loans by owner-occupiers to buy newly-erected dwellings rose by 0.6 per cent in July and the value of loans fell by 0.3 per cent.
• The number of loans by owner-occupiers for the purchase of established dwellings (excluding refinancing) rose by 0.5 per cent in July but the value of loans fell by 1.1 per cent.
• The number of refinancing transactions by owner-occupiers rose by 2.4 per cent in July while the value of transactions rose by 3.1 per cent to record highs.
• The value of new housing commitments (owner occupier and investment) was up 2.7 per cent with owner-occupier loans unchanged while investment loans rose by 6.8 per cent.
• The value of loans by owner-occupiers and investors to build new homes rose from $2.27 billion to $2.42 billion in July, nearing the record high of $2.76 billion in February.
• The proportion of first-time buyers in the home loan market fell from 13.2 per cent in June to a record low of 12.2 per cent in July. First home buyer loans remain well below the long-term average of 20.0 per cent. Fixed rate loans fell from 14.3 per cent to a 17-month low of 13.7 per cent of all loans in July. And the average home loan across Australia stood at $327,500 in July, up 9.0 per cent on a year ago – the fastest annual increase in four years.
• The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the reserve Bank.
• Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
• Business confidence and conditions are certainly a lot better than where they were a year ago. A further lift in profitability will be the key in ensuring that more workers are hired. Smart companies are looking for opportunities in the current environment but there are still plenty of risk-averse businesses on the sidelines. Exports and housing construction are the key drivers of the Australian economy.
• The Reserve Bank doesn’t need to be in a rush to lift interest rates. Inflation remains well contained, while the recent lift in the unemployment rate and underlying Aussie dollar strength continues to hamper rebalancing efforts across the economy.

What is the importance of the economic data?

• The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the reserve Bank.
• Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.

What are the implications for interest rates and investors?

• Business confidence and conditions are certainly a lot better than where they were a year ago. A further lift in profitability will be the key in ensuring that more workers are hired. Smart companies are looking for opportunities in the current environment but there are still plenty of risk-averse businesses on the sidelines. Exports and housing construction are the key drivers of the Australian economy.
• The Reserve Bank doesn’t need to be in a rush to lift interest rates. Inflation remains well contained, while the recent lift in the unemployment rate and underlying Aussie dollar strength continues to hamper rebalancing efforts across the economy.

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