• 

  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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• 

  Business confidence rose in July

  Business conditions and confidence: The NAB business confidence index rose 7.8 points to +11.0 points in July – a 10-month high. The business conditions index improved from +2.5 points to +8.2 points – a four year high. The survey was conducted from July 25 to July 31.

• Exports up: The index of exporters’ sales rose from -1.3 points to a 13-year high of +9.7 points in July (highest since June 2001).
• Consumer confidence falls: The weekly ANZ/Roy Morgan consumer confidence rating fell by 5.7 per cent in the week to July 10. The confidence rating is up 9.3 per cent on the lows recorded for the week to May 25.
• The average credit card balance 2.10 (0.1 per cent) to $3,220.7 in June. The average credit card balance was down 0.7 per cent on a year ago.
• House prices: The ABS measure of home prices rose by 1.8 per cent in the June quarter to be up 10.1 per cent over the past year. The average price of a residential home (houses and units) across Australia is $554,800.

What does it all mean?

• Over the past couple of months the business sector has been more upbeat than consumers on the outlook for the Aussie economy. And the latest results suggest a further improvement in cautious optimism, particularly when it comes to the trading environment. In July, business conditions lifted to the best levels in four years while confidence levels are holding at 10-month highs.
• Interestingly the business confidence readings have not been as volatile as what has been noted by consumers. If anything the business sector shrugged of the negative budget headlines and focussed on the big picture and it seems to be paying dividends. The lift across the sub-indices is particularly encouraging. Profitability has improved and is now holding at the best levels in over four years, while the forward order book has strengthened. In addition the index of exporters’ sales lifted to the best level in 13 years. Not only has the Australian dollar retreated from highs but miners are pumping out product from new and expanded mines. This is the part of the cycle that miners and other related businesses love – the part where investments start to pay off in export sales and increased profits.
• The ongoing lift in conditions is likely to be better news for labour market conditions. As profitability improves we would expect business to increase hours worked and hire additional labour.
• An improvement in labour market conditions would certainly support consumer confidence. The weekly Roy Morgan Consumer Confidence index fell by almost 6 per cent last week, largely as a result of the headline grabbing news of the 6.4 per cent unemployment rate last week – a 12-year high.
• We would expect consumer confidence to rebound 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 businesses.
• 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 rate will be lift anytime this year.
• The Bureau of Statistics has estimated that there were 9,366,800 homes in Australia as at June 2014. Based on the estimated population of 23,533,712 at the time, that equates to 2.512 people per dwelling. Since September 2011 the estimated number of persons per home has lifted from 2.492 people to 2.512 people. If the number of persons per home hadn’t risen, then it is estimated that an extra 78,000 dwellings would have been required.
• If the statistics are correct then Australians have been making greater use of our large dwellings and thus reducing some of the need for extra dwellings

What do the figures show?

National Australia Bank Business Survey:

• The NAB business confidence index rose from +7.8 points to +11.0 points in July – a 10-month high. Thebusiness conditions index improved from +2.5 points to +8.2 points – a four year high.
• The index of trading conditions strengthened from +7.0 points to +13.7 points; employment strengthenedfrom -2.6 points to +0.1 points; profitability strengthened from +3.3 points to +10.2 points; forward ordersimproved from +0.6 points to +5.3 points.
• Inflationary pressures were largely flat in July. The monthly reading of labour costs rose at a 1.0 per cent quarterly rate in July after a 0.7 per cent rise in June. Purchase costs rose at a 0.5 per cent quarterly rate in July, after a 0.4 per cent rise in June. Final product prices rose by 0.2 per cent after a similar rise in June.Retail prices lifted 0.8 per cent in July, after a similar result in June.
• Capacity utilisation lifted from 79.1 to 81.0 in July, 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 June to around 60 per cent in July.

Consumer sentiment:

• The ANZ/Roy Morgan consumer confidence rating fell by 5.7 per cent in the week to July 10 after rising by 1 per cent in the previous week. The confidence rating is up 9.3 per cent on the lows recorded for the week to May 25.
• 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.

Credit & debit card lending:

• Figures released from the Reserve Bank show that the average credit card balance rose by just $2.10 (0.1 per cent) to $3,220.7 in June. The average credit card balance was down 0.7 per cent on a year ago. In smoothed terms (12 month average) the average balance was down by 1.7 per cent.
• Of credit cards attracting interest charges, the average outstanding balance rose by $26.40 in June to $2,245.40. The average balance accruing interest is down by 1.2 per cent on a year ago. In smoothed terms (12 month average) the average balance was down by 4.5 per cent.
• The number of credit cards are up just 0.7 per cent on a year ago.
• The average credit card limit rose by $12.90 to $9,287.60 in June. The average credit card limit rose by 2.2 per cent in the year to June.
• The average number of transactions on credit cards in June was 10.8, similar to May. In smoothed terms the average number of credit card transactions hit a record high of 10.68 in May. The average purchase on a credit card was $135.13 in smoothed terms (average for the year to June).
• The average number of transactions on debit cards in June was 7.6, down from 8.0 in May. In smoothed terms the average number of debit card transactions was 7.82 in June – a record high. The average purchase on a debit card is $55.32.
• 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 Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
• Business confidence and conditions are certainly a lot better than where they were a year ago. The ongoing lift in profitability will be key in ensuring that a further lift in employment takes place. 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 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 Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

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. The ongoing lift in profitability will be key in ensuring that a further lift in employment takes place. 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 continues to hamper rebalancing efforts across the economy.

The post Business confidence lifts; Export sales at 13-year high appeared first on AdviserVoice.

• The Westpac/Melbourne Institute index of consumer confidence rose modestly in February following the sharp slide in January. The index rose by 1.9 per cent to 106.6 in February.
• In trend terms confidence levels have been falling for the past five months and are holding at the lowest levels in 20 months.

What does it all mean?

• The improvement in the latest consumer sentiment reading is certainly a welcome sign, particularly considering the sharp slide in the prior month. The modest bounce in sentiment levels can be put down to a whole host of factors but the receding floods, and cyclone Yasi avoiding significant damage in major population centres, would have to be the key drivers.
• The destruction wreaked by the floods and cyclone no doubt had a profound effect on all Australians. However given the backdrop of a stronger Australian dollar, rising equity markets, sliding unemployment and the Reserve Bank leaving interest rates on hold, it could be argued that sentiment levels would have jumped sharply had the natural disasters not taken place.
• Overall it’s hard to argue that sentiment levels are upbeat or buoyant at present, especially when you look at the raw data across gender, with both male and female respondents actually noting a slide in sentiment levels. Even across the three age categories sentiment levels fell by an average of 3.5 per cent. The seasonality of the data seems to be the clear driver of the latest improvement. Even in trend terms confidence levels have been falling for the past five months and are holding at the lowest levels in 20 months.
• Looking forward retailers will still need to discount in the near term but it is likely that the worst is behind – especially for some of the Queensland retailers. The other good news is that it is looking more likely that the Reserve Bank Board will be sitting on its hands until mid 2011. Interest rates are already modestly restrictive and there are good grounds to argue that the last move to a tighter monetary policy was a little premature. The Reserve Bank would be best served by allowing confidence and spending to repair. The strength in the labour market is also a positive and likely to drive spending in the midterm.

What do the figures show?

Consumer sentiment

• The Westpac/Melbourne Institute index of consumer sentiment rose by 1.9 per cent in February to 106.6 after sliding by 5.7 per cent in January. The index is now down 8.9 per cent on a year ago.
• The current conditions index fell by 1.2 per cent, while the expectations index rose by 4.1 per cent.
• Four of the five components of the index rose in February:
  • The estimate of family finances compared with a year ago fell by 4.4 per cent;
  • The estimate of family finances over the next year rose by 1.4 per cent;
  • Economic conditions over the next 12 months was higher by 1.1 per cent;
  • The measure of economic conditions over the next five years rose by 10.2 per cent;
  • The measure on whether it was a good time to buy a major household item edged up by 0.8 per cent.

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.

What are the implications for interest rates and investors?

• The rate hikes over the past year are having a profound impact on consumer spending patterns. The housing sector is cooling while businesses continue to highlight weak trading conditions. CommSec believes that the next interest rate hike is unlikely to take place until mid 2011.
• Looking forward, it is clear that Aussie consumers are holding on to their conservative attitudes and any further talk of rate hikes will be detrimental to modest improvements in levels. Interest rates need to remain on hold for an extended period to tempt consumer to part with their cash.
• Retail discounting will continue to be a theme in coming months to generate consumer buying interest. However the outlook for retailers is likely to modestly improve as construction activity levels pick up. In particular the massive rebuilding phase that will take place in Queensland will boost spending across an array of sectors.
• Our retail equity analysts have reiterated the buy recommendation on Myer. “The stock is now trading at a around a 20 per cent discount to the ASX200 industrials compared to the retail sector and at a 15 per cent discount to market and is now reasonable value on the downgraded earnings base.”

The post Confidence stabilises but trend index at 20mth lows appeared first on AdviserVoice.

• The Westpac/Melbourne Institute index of consumer confidence rose modestly in February following the sharp slide in January. The index rose by 1.9 per cent to 106.6 in February.
• In trend terms confidence levels have been falling for the past five months and are holding at the lowest levels in 20 months.

What does it all mean?

• The improvement in the latest consumer sentiment reading is certainly a welcome sign, particularly considering the sharp slide in the prior month. The modest bounce in sentiment levels can be put down to a whole host of factors but the receding floods, and cyclone Yasi avoiding significant damage in major population centres, would have to be the key drivers.
• The destruction wreaked by the floods and cyclone no doubt had a profound effect on all Australians. However given the backdrop of a stronger Australian dollar, rising equity markets, sliding unemployment and the Reserve Bank leaving interest rates on hold, it could be argued that sentiment levels would have jumped sharply had the natural disasters not taken place.
• Overall it’s hard to argue that sentiment levels are upbeat or buoyant at present, especially when you look at the raw data across gender, with both male and female respondents actually noting a slide in sentiment levels. Even across the three age categories sentiment levels fell by an average of 3.5 per cent. The seasonality of the data seems to be the clear driver of the latest improvement. Even in trend terms confidence levels have been falling for the past five months and are holding at the lowest levels in 20 months.
• Looking forward retailers will still need to discount in the near term but it is likely that the worst is behind – especially for some of the Queensland retailers. The other good news is that it is looking more likely that the Reserve Bank Board will be sitting on its hands until mid 2011. Interest rates are already modestly restrictive and there are good grounds to argue that the last move to a tighter monetary policy was a little premature. The Reserve Bank would be best served by allowing confidence and spending to repair. The strength in the labour market is also a positive and likely to drive spending in the midterm.

What do the figures show?

Consumer sentiment

• The Westpac/Melbourne Institute index of consumer sentiment rose by 1.9 per cent in February to 106.6 after sliding by 5.7 per cent in January. The index is now down 8.9 per cent on a year ago.
• The current conditions index fell by 1.2 per cent, while the expectations index rose by 4.1 per cent.

• Four of the five components of the index rose in February:
  • The estimate of family finances compared with a year ago fell by 4.4 per cent;
  • The estimate of family finances over the next year rose by 1.4 per cent;
  • Economic conditions over the next 12 months was higher by 1.1 per cent;
  • The measure of economic conditions over the next five years rose by 10.2 per cent;
  • The measure on whether it was a good time to buy a major household item edged up by 0.8 per cent.

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.

What are the implications for interest rates and investors?

• The rate hikes over the past year are having a profound impact on consumer spending patterns. The housing sector is cooling while businesses continue to highlight weak trading conditions. CommSec believes that the next interest rate hike is unlikely to take place until mid 2011.
• Looking forward, it is clear that Aussie consumers are holding on to their conservative attitudes and any further talk of rate hikes will be detrimental to modest improvements in levels. Interest rates need to remain on hold for an extended period to tempt consumer to part with their cash.
• Retail discounting will continue to be a theme in coming months to generate consumer buying interest. However the outlook for retailers is likely to modestly improve as construction activity levels pick up. In particular the massive rebuilding phase that will take place in Queensland will boost spending across an array of sectors.
• Our retail equity analysts have reiterated the buy recommendation on Myer. “The stock is now trading at a around a 20 per cent discount to the ASX200 industrials compared to the retail sector and at a 15 per cent discount to market and is now reasonable value on the downgraded earnings base.”

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• There were fewer young Australians with jobs at the end of 2010 than a year earlier. Employment for those aged between 15-19 years actually fell by 6,100 in 2010 with the slump concentrated amongst women.
• The big winners in the job stakes in 2010 were senior Australians. Employment for those aged 65 and above soared by almost 6 per cent, almost five times the pace of Gen Y workers aged from 15-24 years.
• Inflationary expectations have spiked higher in response to the floods across Australia. In January, the median expectation of survey respondents was for inflation to lift to 4.6 per cent, up from the 2.8 per cent
  median estimate of expected inflation in December.

What do the figures show and what does it all mean?

• The past year was a good one for job seekers with almost 370,000 new positions created, up 3.3 per cent on a year ago. But not all the gains were shared equally. Generation Y lagged behind in the job stakes while senior Australians were the most successful in securing positions.
• Overall just over 26,000 positions were created for those between 15-24 years. However in percentage terms the increase was just 1.3 per cent, well behind the 5.9 per cent lift in employment for those aged above 65 years. In fact, employment for those between 15-19 years actually went backwards by 6,100 in 2010.
• Baby boomers certainly led the way in the job stakes. There are 150,000 more people aged 45 years and above with jobs than a year ago. In contrast the pivotal 25-34 age group saw job numbers rise by just fewer than 140,000 positions.
• Interestingly senior women have been big winners in the job stakes over 2010 with employment amongst women over 65 soaring by 13 per cent over the year. Perhaps prompted by disappointing sharemarket returns there are more couples above 65 years where both partners are working.
• Another group to struggle in the job stakes in 2010 was the key Generation X group – those aged 35-44 years. Employment lifted just 53,200 or 2.1 per cent over the year.
• The 35-44 age group is pivotal in the economy for retail spending and home ownership. The fact that Gen X found it harder to secure jobs over the past year goes a fair way in explaining the conservative behaviour of Australian consumers, especially the reluctance to spend.
• If more senior Australians are being prompted to work by poor sharemarket returns, then they also would be more inclined to save, rather than spend, adding to the broader trend of consumer conservatism.

• Yesterday figures showed that consumer sentiment had weakened in response to the widespread floods across the country. Today data shows that consumers also believe that inflation is likely to rise as a result of the flooding, no doubt concentrated in fresh food items like fruit and vegetables.
• In a survey conducted in December, respondents, on average, expected inflation to be around 2.8 per cent over the coming year. In January the same survey has come up with a expected inflation rate of 4.6 per cent.
• The proportion of people expecting inflation to be between 2-3 per cent slumped to the lowest levels in 20 months in January. The biggest change in expectations was by those who expected prices to lift by more than 10 per cent – the proportion lifted from 9.9 per cent in December to 17.8 per cent in January.
• No doubt many Australians have taken on board media reports of likely spikes in fruit and vegetable prices following the flooding in Queensland. However the fact is supplies of most fruit and vegetable, apart from some selected items, are produced in other parts of the country at this time of year. The main growing time in Queensland is autumn and winter. So the anticipated surge in prices may not take place – at least not to the extent suggested in media reports.
• Still, the spike in inflationary expectations is a concern. If inflationary expectations remain at these higher levels for a number of months they could prove self-fulfilling, resulting in a range of businesses lifting prices by bigger margins than a year ago.
• In coming months it will be important for industry bodies and governments to regularly provide data and trends on food prices to dispel misperceptions.

What are the implications for interest rates and investors?

• Investors shouldn’t be content just to focus on top level trends in employment and consumer spending. By drilling down through the figures, investors get valuable insights. Fundamental improvement in retail spending won’t occur until those in their 20s and 30s secure a greater share of jobs and job security improves.
• The spike in inflation expectations would be viewed with some concern by the Reserve Bank. Still, it may prove a one-off spike, prompted by reporting on the floods. No doubt the test will come as people go about the usual weekly supermarket shopping. If consumers fail to see surges in prices then inflationary expectations will quickly return to normal.
• In November and December all the focus was on discounting by retailers whereas now the concern is about food prices soaring. Inflationary expectations bounce around, but it is the longer-term trend that’s important.

The post Young workers miss out in job stakes appeared first on AdviserVoice.

• The Westpac/Melbourne Institute index of consumer confidence fell sharply in the latest month as the flood disaster in Queensland impacted sentiment. The index fell by 5.7 per cent to 104.7 in December.
• Excluding Queensland, confidence levels fell 3.2 per cent.
• The January seasonal factors exacerbated the slide in confidence. In fact in original terms confidence levels rose amongst females while males were gloomier.

What does it all mean?

• There is no doubt that the sharp slide in consumer sentiment is almost wholly due to the flood disaster across the nation. In particular the destruction wreaked by the floods in Queensland has had a profound effect on all Australians. Consumer sentiment fell by 5.7 per cent, marking the biggest monthly slide in eight months. Interestingly once Queensland is taken out of the survey, sentiment still fell a substantial 3.2 per cent. Even the sustained improvement in equity markets was unable to curb the sharp slide in confidence levels.
• One point to note is the seasonality of the data. January tends to be a more positive month for sentiment, given the festive and holiday season. However this time around sentiment fell rather than rose thus exacerbating the size of the decline in seasonally adjusted terms. Hence a fall of around 1.4 per cent in original terms became a more significant 5.7 per cent decline in seasonally adjusted terms.
• In fact when you look at the data across the age groups, the falls look much more modest, with the 25-44 age group actually recording an increase in confidence. Even when you look at the result across gender, female respondents actually noted a pickup in sentiment levels while males were gloomier.
• The overall level of pessimism in the latest result would normally not bode well for consumer activity. However this time is different, especially given the massive rebuilding phase in Queensland that will take place in coming months.
• Looking forward retailers will still need to discount in the near term but it is likely that the worst is behind – especially for some of the Queensland retailers. The other good news is that it is looking more likely that the Reserve Bank Board will be sitting on its hands until mid 2011. Interest rates are already modestly restrictive and there are good grounds to argue that the last move to a tighter monetary policy was a little premature. The Reserve Bank would be best served by allowing confidence and spending to repair. The strength in the labour market is also a positive and likely to drive spending in the midterm.

What do the figures show?

Consumer sentiment

• The Westpac/Melbourne Institute index of consumer sentiment fell by 5.7 per cent in January to 104.6 after rising by 0.3 per cent in December. The index is now down 12.9 per cent on a year ago.
• The current conditions index fell by 3.2 per cent, while the expectations index fell by 7.5 per cent.
• Four of the five components of the index fell in January:

• The estimate of family finances compared with a year ago fell by 2.1 per cent;
• The estimate of family finances over the next year fell by 5.6 per cent;
• Economic conditions over the next 12 months was lower by 15.7 per cent;
• The measure of economic conditions over the next five years rose by 0.2 per cent;
• The measure on whether it was a good time to buy a major household item fell by 3.9 per cent.

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.

What are the implications for interest rates and investors?

• The rate hikes over the past year are having a profound impact on consumer spending patterns. The housing sector is cooling while businesses continue to highlight weak trading conditions. CommSec believes that the next interest rate hike is unlikely to take place until April 2011.
• Looking forward, it is clear that Aussie consumers are holding on to their conservative attitudes and any further talk of rate hikes will be detrimental to modest improvements in levels. Interest rates need to remain on hold for an extended period to tempt consumer to part with their cash.
• Retail discounting will continue to be a theme in coming months to generate interest. However the outlook for retailers is likely to modestly improve as activity levels pick up. In particular the massive rebuilding phase that willtake place in Queensland will boost spending across an array of sectors.

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• There’s no doubt that researchers have it easy nowadays compared with their predecessors even just a decade ago. There is just so much information freely available. And it’s important to note that the definition of researchers can cover a broad cross-section of people. It may be economists, small-business people, local governments and
  even large corporations.
• Just this week the Bureau of Statistics has released the latest National Regional Profile, providing a vast array of data covering the period from 2004 to 2009. The data included items such as home prices, wealth levels, demographic information and industry composition. And the good news is that researchers can drill down to relatively fine geographical areas.
• No doubt it would be good to get even timelier data. But it is a simple case of cost/benefit. There is a vast amount of data that can be collected but would the outlay of our taxpayer dollars be worth the benefit?
• Amongst the more interesting results were the estimates of home prices (or more specifically, the average value of private sector houses. The data is only provided up to June 2009 but it is nevertheless useful to see how values, and therefore wealth, has changed over time. Usually the information is only available at a national level or for capital cities, so the regional figures provide an extra layer of information.
• Looking at the data at a statistical sub-division level, the stand-out areas over the past five years have been De Grey in the Pilbara and Carnegie in central Western Australia. From 2004 to 2009, home prices in the De Grey region rose 236 per cent while Carnegie values lifted 220 per cent. Admittedly the values were very volatile over the period – it certainly wasn’t a steady increase.
• Still it’s important to note that Western Australia grabbed the first six spots on the list of strongest home price gains over the five-year period.
• On average across the 201 regions assessed, home prices grew by 46 per cent over the five-year period, or around 9 per cent a year. That is, only slightly above the very long-term average, so it hardly is descriptive of a housing “bubble”. And there were actually six regions where prices retreated over the period according to the data. Interestingly the figures suggest that Albury home prices fell by 20 per cent, while in the ACT, Belconnen prices eased by 1.7 per cent and Gunghalin-Hall fell by almost 19 per cent. In contrast South Canberra home
  values were assessed to have lifted by 70 per cent over the period.
• Sometimes there can be gremlins in the data, but importantly it is actually having the data that causes researchers to look more closely to see whether there are underlying issues or problems to be investigated.

The week ahead

• Regular readers would know that every change in season is ushered in with a barrage of economic data, and certainly it is no different with the onset of summer in Australia. Around a dozen key indicators will be released over the coming week – fortunately we have another week to wait for the next Reserve Bank Board meeting.
• On Monday, the Bureau of Statistics (ABS) releases the latest Business Indicators publication, covering data such as inventories, sales and profits. On Tuesday, RP Data issues the latest update on Australian home prices while the Reserve Bank releases private sector credit (lending). And on the same data the ABS issues the balance of payments, government finance and building approvals.
• Some analysts may say that Wednesday is the highlight of the week with the latest economic growth estimates (GDP) to be released. But the data is quite old now and certainly the Reserve Bank has already got a good handle on what the figures will show. The Performance of Manufacturing survey is also issued.
• On Thursday international trade and retail trade figures will be released. And on Friday the Performance of Services survey is issued.
• In terms of the forecasts, home prices were probably close to flat with credit (lending) up 0.1 per cent. Simply, people just don’t want to take on more debt, and higher interest rates aren’t helping the situation.
• Building approvals probably rebounded by 5 per cent in October – they certainly need to, having fallen 31 per cent over the past six months, or the biggest drop in a decade. The trade surplus should have been maintained close to $2.5 billion in October. And retail trade may have again edged 0.5 per cent higher, keeping annual growth at a sub-standard rate near 4 per cent.
• And the economy probably grew by 0.7 per cent in the September quarter – a result that is good, but not great. Consumption and investment are growing at modest rates, but Aussies are still not prepared to fully commit to the future, worried about what else may fall from the cupboard.
• In the US, there is also a fair slab of data to be released, but most will only have eyes for the employment (nonfarm payrolls) figures to be released on Friday.
• Earlier in the week the Case-Shiller home price data is issued on Monday alongside the Chicago purchasing managers index and consumer confidence. On Wednesday there is an avalanche of data including the Federal Reserve Beige Book, car sales, the ISM manufacturing index, ADP employment report and construction spending. Pending home sales and weekly jobless claims data are issued on Thursday. On Friday the ISM services index and factory orders figures will no doubt play second fiddle to the jobs data.
• Economists are tipping another solid month of job gains with payrolls expected to have lifted by 150,000 in November, close to the October result. Perhaps US businesses are again embracing the future, with the help of a weaker greenback to drive exports. But the jobless rate probably remained near 9.6 per cent.
• Of the other data, the ISM manufacturing index may have eased from 56.9 to 56.0 but it remains at a healthy level. Again, the ISM services index may have been little changed near 54.3. Consumer confidence is tipped to lift from 50.2 to 52.0; construction spending probably eased 0.1 per cent and factory orders lifted by 0.3 per cent.

Sharemarket

• Will there be a ‘Santa Claus’ rally this year? Some analysts think there will, in fact tipping very solid gains, but certainly the month of November hasn’t been a good lead in. Still, the optimistic forecasters have history on their side with the All Ordinaries only sliding on four occasions over the past 20 years and seven times in the past 30 years.
• So why the good track record? Some will put it down to ‘window dressing’ by fund managers. Whether it is the US or Australia, fund managers rule off the books for the month, the quarter and the calendar year. And it is in the interest of fund managers to show the best possible returns in order to attract new investment inflows.
• And then there is the forward-looking approach by investors to take into account. Investors are likely to end this year, much the same as the last – expecting better times ahead. The Australian sharemarket fell in both December 2007 and December 2008, but that was understandable given the GFC. In December last year stocks lifted by 3.5 per cent, extending the rally that began in early March. This year there is again the sense that the healing process in underway, although tinged with a little more frustration than last year.

Interest rates, currencies & commodities

• Many commodities have very developed futures markets. For instance futures quotes exist for US crude oil for the next eight years. Clearly this is extremely positive for oil users, allowing them to hedge risks well into the future. And for speculators it provides a range of opportunities to take positions. But what is the shape of the oil futures curve telling investors about future oil demand. The December 2010 oil price is around US$81.75 a barrel, and from there the curve climbs to US$85.17 by December 2011 before flattening to US$86 by December 2012. When you consider that oil prices were hovering around US$87 a barrel in early November, it is clear that traders still express doubts about the path of the global economy in 2011.

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• Credit card balances rose in September. The average credit card balance stood at a $3,261.60 in September, up $7.90 on August. The average credit card balance is up just 3.7 per cent on a year earlier –
  the slowest annual growth in seven months.
• The number of credit card cash advances in September was down 6 per cent on a year earlier. Credit card advances have been largely falling in annual terms for around four years.
• The number of purchases made on debit cards rose by 2.9 per cent in September to stand 20.7 per cent higher than a year ago.

What does it all mean?

• Aussie consumers are certainly keeping a tight hold on their wallets, and it is clear that a more conservative spending pattern has emerged over the past year. But there have been some subtle signs of thawing in the conservative behaviour that consumers have been displaying over the past year or so. In September the average credit card balance rose by a rather modest $8 and since bottoming out 18 months ago credit card balances have been steadily rising.
• Despite the modest improvements consumers still prefer using existing cash facilities than taking on additional debt. The number of credit card transaction are up 5.2 per cent on a year ago, far outpaced by the spending on debit cards which are up a healthy 20 per cent on a year ago. Even the growth in credit card balances accruing interest has been sluggish with consumers continuing to pay down debt before the interest free period expires.
• Interestingly the incremental improvements in credit card activity and balances occured during a period of interest rate stability. The $64 dollar question is what happens now given last week’s rate hike? If the consumer confidence numbers released earlier this week is anything to go by, it is like that the early signs of a recovery in spending activity is likely to take even longer to become a fully fledged recovery.
• Consumers are still shopping around for bargains, but with the job market firmer, rising equity markets and discounting by retailers expected to be a feature for some time, it is likely that activity levels should improve in the early part of 2011.

What do the figures show?

Credit & debit card activity:

• Figures released from the Reserve Bank show that the average credit card balance stood at $3,261.60 in September, up $7.90 on August. The average credit card balance is up 3.7 per cent on a year earlier – the slowest annual growth in seven months. And growth of a smoothed measure of credit card debt – the rolling 12- month average – eased from 4.6 per cent to 4.2 per cent in the month.
• Of credit cards attracting interest charges, the average outstanding balance rose by almost $12 in September after falling $8 in August. The average balance accruing interest stands at $2385.10, up 5.4 per cent on a year ago but only up 3.9 per cent on a “smoothed” basis.
• The number of credit card cash advances in September was down 6.0 per cent on a year earlier. Credit card advances have been largely falling in annual terms for around four years.
• The number of purchases made on credit cards fell by 0.7 per cent in September to stand 5.2 per cent higher than a year earlier. The number of purchases made on debit cards rose by 2.9 per cent in September to stand 20.7 per cent higher than a year ago.
• The number of just EFTPOS transactions in September (excludes cash out) rose by 3.4 per cent to stand 23.3 per cent higher than a year ago.
• The value of cash withdrawn from ATMs in September continued to fall in annual terms. The number of cash withdrawn was down 0.2 per cent on a year ago – the 18th annual decline.

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 Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

What are the implications for interest rates and investors?

• The frequency of the rate hikes earlier this year did take its toll on the household budget. However given that the Reserve Bank did remain on the interest rate sidelines for the past six months, there are tentative signs that conservatism is thawing. The recent rate hike may result in the recovery in activity taking longer to play out.
• EFTPOS transactions are almost 23 per cent higher than a year ago. And CommSec expects consumers to continue using existing cash facilities, rather than taking on additional debt.

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• As expected, the Westpac/Melbourne Institute index of consumer confidence fell in the latest month in response to the latest interest rate hike. The index fell by 5.4 per cent to a five-month low of 110.7 in November.
• Home lending recorded a modest rise in September. The number of new home loans to owner-occupiers rose for the third consecutive month, rising by 1.3 per cent in September. In annual terms housing finance commitments are still down 24.6 per cent on a year ago.
• Construction of dwellings rose for the first time in 11 months, up by 0.5 per cent in September. The value of investment loans rose by 1.0 per cent in September. The average home loan across Australia stood at $285,100 up 5.8 per cent on a year ago.

Click here to download this document (pdf)

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• The Reserve Bank has tinkered with economic growth forecasts, but the trajectory is largely unchanged. However the Reserve Bank has modestly downgraded inflation forecasts. The economy is tipped to grow by 3.50-3.75 per cent over 2011 and 3.75-4.00 per cent over 2012. Underlying inflation is tipped to be around 2.50 per cent over the period to June 2011 and to lift to 2.75 per cent in the year to June 2012.
• It is clear from the latest monetary policy statement that this week’s rate hike was very much a strategic decision. While inflation is expected to remain in the Reserve Bank’s 2-3 per cent target range, the Bank wanted to take out some fresh insurance that inflation would stay there – “early and modest” rate hike. The Reserve Bank has now returned to ‘wait and see mode’ – no imminent rate move is flagged.
• The Reserve Bank assumes higher interest rates in making its inflation and growth forecasts. The Bank should follow the lead of Reserve Bank New Zealand and more explicitly state its interest rate
  assumptions.
• The construction sector continued to contract in October. The Performance of Construction index stood at 44.0 in October, below the reading of 50 that separates expansion from contraction.

What does it all mean?

• This week’s rate hike was clearly strategic. As we expected, the Reserve Bank has actually trimmed its inflation forecast. But despite that move it still decided to lift rates anyway. Clearly the inflation forecast was predicated on the assumption of some lift in interest rates. The Reserve Bank decided to lift rates now, rather than later, as a pre-emptive strike against inflation. As the old adage goes, ‘a stitch in time saves nine’. Perhaps that small rate hike will prevent rates from rising higher than originally expected over 2011.
• The latest rate hike certainly took the market by surprise and the justification by the Reserve Bank for the rise in rates was squarely placed on concerns about future inflation. The release of the latest Monetary Policy Statement highlights the Reserve Bank’s thinking on inflation and it seems that inflation is not expected to be a major concern until 2012. Inflation forecasts have been downgraded with both the core and underlying measures comfortably holding with the Reserve Bank’s target band.
• What we don’t know is how much monetary tightening is assumed in 2011 to ensure that inflation remains in the target band. The Reserve Bank merely says that it bases its views on market expectations for interest rates. The problem is that the overnight indexed swap rate is assuming a 5.00 per cent cash rate in a year’s time but market economists assume a cash rate of 5.50 per cent.
• The Reserve Bank notes that higher interest rates will be the key driver in ensuring a low inflation era. The Australian public would like to know what those rate assumptions are. Clearly it would be beneficial for Australian businesses and consumers if the Reserve Bank released its interest rate forecasts, similar to other central banks like the Reserve Bank of New Zealand. The release of interest rate assumptions would be the next step in the evolution process for monetary policy setting in Australia. The Reserve Bank now releases statements after each meeting and Board minutes – the next step is releasing its interest rate assumptions.
• The Reserve Bank currently doesn’t have a single ‘hot button’ factor – it is watching everything. Food prices, wages, the Australian dollar, consumer conservatism and global factors are all being closely watched. Certainly there is no indication that rates will have to rise further – not yet, anyway. The Reserve Bank has returned to watching – and it is watching everything.
• The data over the past week, has painted a picture of an economy that is far from robust. Building approvals continue to slide, retail sales are soft, manufacturing exports and new orders are sliding and the construction sector is still contracting. And given the additional rate increases by the banks the RBA may face an extended period on the monetary policy sidelines.

Key quotes and observations from the statement

• Rate Decision: “Over the past couple of months, economic developments appear to have been broadly in line with the Bank’s central scenario, and the downside risks in Asia look to have lessened a little. As a result, at its November meeting the Board concluded that it was prudent to make an early and modest adjustment to monetary policy, increasing the cash rate to 4.75 per cent.”
• Rate outlook: “Money market yields suggest markets currently expect a further increase in the cash rate in the first half of 2011.”
• Central forecast: “The outlook is positive, supported by the expected strong growth in investment in the resources sector, the income boost flowing from the elevated level of commodity prices and ongoing solid population growth, albeit at a reduced pace relative to the high rate of around a year ago. With the economy having limited spare capacity, there is likely to be an increase in inflationary pressures over the forecast period.”
• Economic forecast: “GDP growth is expected to be around trend for 2010. It is then forecast to pick up to a slightly above-average pace in 2011 and through to the end of the forecast period in June 2013.”
• Inflation: “The proportion of expenditure classes recording annualised price rises of more than 2.5 per cent (by weight and seasonally adjusted) remained at around 40 per cent in the September quarter, which is low relative to outcomes over the past decade.”
• Inflation forecast: “The near-term forecast for year-ended inflation is a little lower than at the time of the August Statement. This is largely due to the recent appreciation of the exchange rate and the effect of the slightly lowerthan- expected September quarter outcome.”
• Inflation forecast (again): “The bulk of the disinflationary effects from the slowdown are likely to have passed, and the subsequent strengthening in economic conditions and the labour market is expected to lead to a gradual pickup in inflation in the medium term.”
• Risks: There is a risk posed by the timing of resource projects – that could impact on the profile of GDP growth. Another risk relates to the caution by consumers – if this waned and there was a ramp up in mining projects, this combination could boost wages and prices. There are upside risks for Asian economies, especially China. There are downside risks for advanced nations.
• Downside risk: “If developments in global financial markets resulted in a significant further appreciation (of the Aussie dollar) that was unrelated to these factors (higher commodity prices and interest rate differential), it would likely result in both growth and inflation being lower than in the central forecast.”
• Business caution: “Outside of the mining sector, liaison indicates that a degree of caution still characterises firms’ spending decisions, with confidence and investment intentions around average levels.”
• Bank funding costs: “The average cost of the major banks’ long-term funding continues to rise as maturities are rolled over at higher spreads.”
• Home building: “…the pick-up in housing construction is moderate by historical standards, especially given strong demand for housing from a growing population.”
• Wages: “Measures of wage growth have risen in 2010, after the subdued outcomes in 2009. Despite this pickup, wage growth in the private sector was slightly below average over the first half of 2010, while in the public sector, wages have continued to grow at a slightly above-average pace. Looking forward, a further increase in wage growth is expected over time, as the labour market tightens further.”
• Cautious consumers: “…the Bank’s liaison continues to suggest that consumers are cautious in their spending. The appetite for new debt also remains more subdued than in the past, with both housing and credit card debt currently growing at historically low rates. This has been associated with a welcome cooling in the housing market, with dwelling prices declining slightly over recent months, after increasing solidly over the year to the March quarter.”
• Labour supply: “Despite a high level of vacancies and the relatively low unemployment rate, firms in most industries are not reporting unusual difficulties in hiring suitable labour. The main exceptions are in some miningrelated occupations, where the labour market is quite tight.”
• Labour supply (again): “In business surveys and the Bank’s liaison, most firms are reporting that finding labour is currently not a major issue; the difficulty of obtaining suitable labour has risen to a little above average levels, though it remains well below its level prior to the downturn when the labour market was tight.”
• Business sector: “Conditions in the business sector are broadly favourable, although there is considerable variation across industries.” And further: “Outside of the mining sector, investment intentions are around average levels and the Bank’s liaison suggests that firms remain cautious in their spending decisions.”

Other Economic Data

• The Performance of Construction index rose by 3.2 points to 44.0 in October. A reading below 50 indicatesthat the construction sector is contracting. The construction sector has now been contracting for five consecutivemonths. The key forward-looking indicators were still weak. New orders rose by 4.1 points to 42.4. Employmentrose by 1.1 points to 45.1. Input costs rose sharply partially offset by a rise in selling prices. The housing,apartment and commercial indexes all continued to show declines.

What is the importance of the economic data?

• The Reserve Bank releases its Statement on Monetary Policy each quarter. The Statement is the Reserve Bank’s assessment of economic and financial conditions and also contains the latest inflation views. The Statement is crucial is assessing the short-term outlook for interest rates.
• The Performance of Construction index is released by Australian Industry Group and the Housing Industry Association each month. The PCI is designed to provide a guide to conditions in residential, commercial and engineering construction sectors.

What are the implications for interest rates and investors?

• The Reserve Bank expects inflation to remain in its target band over the next year. What we don’t know is how much – if any – monetary policy tightening is assumed to keep the economy on the straight and narrow.
• The Reserve Bank is not signalling any near-term rate hike. Rates look to be on hold until February 2011.
• If the economy evolves as the Reserve Bank expects it will be very positive for investors – firm economic growth and contained inflation.

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