Consumer spending perspective

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  What did Australians spend their money in last year?

  Retail trade in 2013: Over 2013 as a whole, Australians spent $264.2 billion at retail outlets. Spending was up 3.2 per cent over 2012 – the strongest calendar-year growth in four years.

• “New normal?” The 3.2 per cent growth in spending was just below the 5-year-average growth rate of 3.4 per cent. In real (inflation-adjusted) terms, retail trade grew by 2.3 per cent in 2012, just above the 5-year average of 2.1 per cent.

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Retail trade grew by 0.1% in May to stand at a lacklustre 2.3% higher through the year.

Retail spending subdued

Retail trade rose by 0.1% in May, which was slightly less than market expectations which centred on a rise of 0.3% {CBA (f) +1.0%}. The result was made more disappointing by downward revisions to March and April’s figures (for example, April was revised down to a decrease of 0.1% over the month from a previously reported increase of 0.2%). Spending is growing at a subdued 2.3% in annual terms, which is below trend.

The retail sector has had a mixed 2013, so far. Spending was up solidly in the few two months of the year, but has since tapered off. In particular, sales over the last few months have been sedate. Some of the recent retail trade outcomes are reflecting the divergence between the real and nominal economies. Over the first quarter of 2013, real retail trade was growing at a faster rate than nominal sales, which is rare. The divergence was reflecting discounting in some parts of the retail sector, particularly the household good retailing category which largely comprises imported goods. These goods have been made cheaper by a strong Aussie dollar. But the currency has depreciated by around 10% since its peak over the last two months, so we are unlikely to see the divergence between nominal and real outcomes continue.

Over May, retail trade was strongest in department stores (+0.8%) and other* (+0.8%). This was followed by clothing, footwear and personal accessory retailing (+0.4%) and food retailing (+0.2%). There were falls in household goods (‑0.3%) and cafes, restaurants and takeaway food services (‑0.6%).

On a State basis, the results were mixed. There were increases in WA (+1.6%), NT (+0.8), SA (+0.6%), Tas (+0.6%) and Qld (+0.5). The two largest States, NSW and Victoria, both recorded a fall in retail trade over May. Sales were down by 0.4% in NSW and 0.3% in Victoria. Retail trade also declined in ACT (‑1.7%).

The consumer spending story has been a mixed one. The broader picture is that while consumers are spending, they are selective with where they spend their money. And retailing has been missing out. In particular, the retail sector has had to compete against consumers spending a greater proportion of their disposable income on overseas holidays, which have been made cheaper by a strong Aussie dollar. But the outlook is more positive for the local retail sector. The non‑trivial 10% fall in the Australian dollar makes overseas holidays less attractive. And it also means purchasing online from international retailers is more expensive. Both of these shifts in relative prices support domestic retail trade. In addition, household disposable income has been boosted from interest rate cuts. These take some time to work their way through the economy with some mileage still to come from the most recent rate cuts.

The CBA Business Sales Indicator, which is a broader measure of consumer spending than retail trade data, recorded its strongest monthly percentage increase in five years in May. This suggests that consumer spending is running at a more robust pace than what the retail trade data indicate.

The HIA new home sales figures for May were also published today. New homes sales increased by 1.6% in May, which took sales back to their highest level in eighteen months. So while the effects of lower interest rates are not showing up in the retail trade data, the latest home sales figures suggest that lower rates are having a positive effect on the housing market. The RP Data‑Riskmark house prices data out this week, which showed dwelling prices rose by 1.9% in June, is further evidence of the impact that monetary policy stimulus is having on housing activity. Increased construction activity and a positive wealth effect will eventually spill over to the retail trade sector.

*other retailing includes newspaper and book retailing, recreational goods retailing and pharmaceutical, and cosmetic and toiletry goods retailing.

Click here for the full report.

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• According to the Commonwealth Bank Business Sales Indicator (BSI), spending fell by 1.9 per cent in seasonally adjusted terms in December after rising by 2.4 per cent in November.
• But the less volatile trend estimate of spending shows that underlying spending is indeed lifting, rising by 0.3 per cent in December, the third straight gain of that magnitude and the fifth straight monthly increase in economy-wide spending.
• 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, 12 of the 20 industry sectors contracted in trend terms in December, down from 13 sectors in November. But only two of the eight states and territories recorded weaker sales in trend terms in December, a similar result to November.
• 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?

• It is clear that at present the economy is treading water. Following an outsized gain in business sales in November, consumers have once again returned to conservative habits, with economy-wide spending easing by 1.9 per cent in seasonally adjusted terms in December.
• Over the past six months, we have seen fluctuating peaks and troughs in consumer spending. The good news is that spending is higher than a year ago across all States and Territories, however it is improving from a low base. In addition the more smoothed trend measure of spending lift for the fifth consecutive month – highlighting the underlying modest improvement in activity.
• Overall it was disappointing to see that retail sales levels were weaker in the key Christmas spending period. And the data suggested that a significant proportion of retail activity was largely due to the significant discount that took place, particularly in the post-Christmas period. Importantly it is still early days and rate cuts do have a more protracted and prolonged impact on the economy. In fact the ongoing improvement in consumer confidence should lead to a pickup in spending momentum over the medium term.
• In addition the job market remains balanced, wage growth is exceeding growth of prices and both house prices and share prices have been moving higher. In addition the Reserve Bank will continue to consider the possibility of further interest rate cuts over the next few months. So the outlook for the economy remains positive.

What do the figures show?

• Economy-wide spending is trending higher although the result in being masked by volatility in the monthly data. The latest Commonwealth Bank Business Sales Indicator (BSI) shows that spending fell by 1.9 per cent in seasonally adjusted terms in December after lifting by 2.4 per cent in November. The seasonally-adjusted figures have tended to move in a zig-zag fashion over the past seven months.
• But the less volatile trend measure of economy-wide spending is useful in gauging the underlying direction of spending. And the trend BSI rose by 0.3 per cent in December, the third straight month that spending has lifted by that magnitude and the fifth straight monthly increase in spending. In trend terms spending has only eased in two of the past 17 months.
• 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, 12 of the industry sectors fell in December, down from 13 sectors in November. The strongest monthly trend increase in sales occurred in Transportation (up 1.8 per cent), followed by Government services (up 1.4 per cent) and Automobiles & Vehicles (up 1.1 per cent).
• Amongst the weakest sectors in December were Service Providers (down 3.6 per cent), Hotels & Motels (down 1.0 per cent) and Automobile/vehicle rentals (down 0.9 per cent).
• In annual terms, just four of the 20 industry sectors contracted in December, a similar result to November. Spending fell in Airlines (nfp), Service Providers (down 5.6 per cent), Hotels & Motels (down 4.3 per cent) and Automobile/Vehicle Rentals (down 1.5 per cent).
• At the other end of the scale, spending was notably higher at Amusement & Entertainment (nfp) together with Wholesale Distributors and Manufacturers (up by 18.2 per cent), Retail Stores (up 7.4 per cent), Contracted Services (up by 4.9 per cent) and Automobiles & Vehicles (up 6.2 per cent).
• Only two of the states and territories recorded weaker sales in trend terms in December: Northern Territory & South Australia (both down 0.3 per cent). Sales were flat in Western Australia. And sales rose most in Victoria and ACT (both up 0.5 per cent) followed by NSW (up 0.4 per cent), Queensland (up 0.3 per cent), and Tasmania (up 0.1 per cent).
• The trend BSI has now risen for 18 straight months in Queensland, for 14 straight months in ACT and for nine straight months in Tasmania.
• In annual terms, no state or territory had sales below a year ago. Strongest growth was posted in South Australia (up 10.6 per cent), followed by ACT (up 10.5 per cent), Queensland (up 8.1 per cent), Victoria (up 5.0 per cent) and Western Australia (up 4.1 per cent).

What are the implications for interest rates and investors?
The Reserve Bank certainly has the firepower to cut rates again. No doubt it will weigh its options carefully in coming months, assessing elements like the Aussie dollar, an economic recovery in China as well as home prices and consumer and business borrowing.

The Reserve Bank watches all indicators very closely, and as demonstrated by the recent article in its quarterly Bulletin, takes a keen interest in the CBA Business Sales index. And the fall in spending in December is likely to ensure that the Reserve Bank continues to maintain an easing bias.

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• The Federal Government has proposed a new tax on carbon emissions of $23 a tonne to apply to 500 of the biggest corporate emitters from July 2012.
• The aim of the tax is to increase the price of goods produced by carbon-intensive industries and thus change behaviour of consumers and businesses. But the extent of the compensation mechanisms substantially reduces the effectiveness of the tax. If consumers are no worse off, and in fact many are better off, then you don’t have the incentive to change behaviour.
• The cost to the budget over the next four years is $4,281 million, including assistance packages for the steel and coal industries ($2,906 million in 2011/12). The Government expects the carbon tax to reduce emissions but income per person will be lower than in the absence of the scheme. Employment is tipped to increase by 1.6 million over the next nine years after rising by 2.18 million over the past nine years.
• The proposed tax on carbon emissions could work to reduce global emissions provided other countries moved at the same time. The risk of moving too quickly before other countries is that it reduces the competitiveness of Australian industries.

What does it all mean?

• The good news is that the release of details of the proposed carbon tax reduces uncertainty. The price of carbon is finally known as are the compensation mechanisms. The bad news is that the uncertainty has only just begun for consumers and businesses. Now Australians will be inundated with the pros and cons proffered by politicians, industry associations and interest groups.
• The Federal Government is proposing a tax on carbon emissions based on the theory that the global increase in carbon emissions is contributing to climate change. If you believe in the theory then it is reasonable that efforts are made to reduce carbon emissions. But a global problem requires a global situation. Australia represents just 1.5 per cent of global carbon emissions. So without significant efforts by large countries – China, India and the United States – then Australia’s efforts will have negligible effect.

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• At the end of the day, a tax on carbon emissions would work to reduce global emissions provided other countries moved at the same time. The risk of moving too quickly before other countries is that it reduces the competitiveness of Australian industries. Ahead of similar measures to price carbon by other countries, a better move in the interim may be to legislate for the gradual reductions of carbon emissions by companies.
• Unfortunately, as Greens senators acknowledge, there is the real risk that the Kyoto Protocol agreement to reduce carbon emissions will not be renewed when the United Nations climate change summit is held in Durban later in the year.
• In practical terms, the efforts to tax carbon emissions represent a lot of effort to produce little benefit. Australian consumers are likely to be rightly sceptical about whether their cost of living will rise. The Government says 5 million households will be super-compensated for the carbon tax. But until the compensation comes through, consumers will remain sceptical, entrenching “consumer conservatism”. While it is proposed that 90 per cent of households will be compensated, it still means that 10 per cent will be made worse off by the introduction of a new tax.
• In pure economic terms, there will be debate that the carbon tax – as currently proposed – is the right approach. As Professor Judith Sloan pointed out in The Australian on July 9/10, taxation measures are assessed on three grounds: efficiency, equity and simplicity. Professor Sloan argues that the tax fails on all three grounds. Clearly the tax is far from simple, as the Prime Minister acknowledged at the press conference. On efficiency grounds, the tax falls short of ideal for the simple fact that other countries are not moving at the same time. And on equity grounds, some in the community are actually made better off by the introduction of the carbon tax while others are made worse off. In addition, the extent of compensation measures reduces the effectiveness of the tax as it fails to change consumer and business behaviour.
• In political terms, the Federal Government faces significant risks in proposing a new tax on carbon. The tax is far from simple, making the selling job more difficult. The “Clean Energy Future” documents alone total 250 pages. And, rightly or wrongly, the fact that Julia Gillard ruled out a carbon tax ahead of the election will mean that consumers will be sceptical that they won’t be worse off with the introduction of the new tax. Consumer confidence is currently weak with the principal concern being on the rising cost of living and impact on household finances. The new carbon tax won’t ease those concerns – especially in the short term.· If opinion polls show a substantial fall in support for the Government then this will increase political uncertainty. Understandably foreign investors will be reluctant to put money to work in Australia until the carbon tax legislation is passed. There will be on-going hesitancy to invest until the tax begins in July 2012.

What are the details of the proposed tax? (note: much of the detail below is directly taken from Government documents)

• The Federal Government has proposed a “Clean Energy Future” program” that involves:
  • introducing a carbon price
  • promoting innovation and investment in renewable energy
  • encouraging energy efficiency
  • creating opportunities in the land sector to cut pollution.

• The Government has committed to reduce carbon pollution by 5 per cent from 2000 levels by 2020, and by up to15 or 25 per cent depending on the scale of global action. These targets will require cutting expected pollution by at least 23 per cent in 2020. The Government also commits to a new 2050 target to reduce emissions by 80 per cent compared with 2000 levels.

Carbon price

• The Government is proposing a tax of $23 per tonne on carbon emissions to begin from July 1 2012. The carbon pricing mechanism will be fixed for the first three years and will rise at 2.5 per cent per annum in real terms. On 1July 2015, the carbon price will transition to a fully flexible price under an emissions trading scheme, with the price determined by the market.
• A carbon price will be applied to domestic aviation, domestic shipping, rail transport, and non-transport use of fuels. A carbon price will not apply to household transport fuels, light vehicle business transport and off-road fuel use by the agriculture, forestry and fishing industries. Household fuel is exempt from the tax. The Government intends to apply a carbon price to heavy on-road transport from 1 July 2014. This measure was not agreed by the Multi-Party Climate Change Committee.
• There will be a household assistance package and it is estimated that 50 per cent of the revenue from the carbon tax will be spent on household assistance.
• The Federal Government claims that the average household will see cost increases of around $9.90 per week, while the average assistance provided will be around $10.10 per week. The effects of the carbon tax are estimated to lift the Consumer Price Index by 0.7 per cent in 2012/13.
• The cost of electricity for the average family is expected to increase by $3.30 a week with gas up $1.50 a week and food up by $1 a week.
• The Federal Government is also proposing that the revenue raised from the carbon tax will allow the tax-free threshold to be more than trebled to $18,200 in 2012-13. From 2015, the tax-free threshold will be further raised to $19,400.
• The Government estimates that 4 million households will be better off – that is, they will receive assistance that covers at least the average price impact of the carbon price on their cost of living.· Pensions, allowances and benefits will also increase. Pensioners and self-funded retirees will get up to $338 extra per year if they are single and up to $510 per year for couples, combined. Families with two children will get up to $220 in extra Family Tax Benefit Part A, and other families will get up to $110 per child. Families will get up to an extra $69 in Family Tax Benefit Part B. Allowance recipients will get up to $218 extra per year for singles,$234 per year for single parents and $390 per year for couples, combined. Self-funded retirees on the Commonwealth Seniors Health Card (CSHC) holders will get $338 per year for singles and $510 per year for couples, combined, through their Seniors Supplement.

The Climate Change Authority (CCA)

• The CCA will be established by legislation as an independent body to provide expert advice on key aspects of the carbon pricing mechanism and the Government’s climate change mitigation initiatives. The Government will remain responsible for carbon pricing policy decisions with significant and far-reaching implications. A Clean Energy Regulator will be established to administer the carbon pricing mechanism within a limited and legislatively prescribed discretion.

Federal Government initiatives

• Clean Energy Corporation: The Federal Government will invest $10 billion in a commercially orientated Clean Energy Corporation. Of the total $5 billion will be dedicated to investments in renewable energyprojects. The other $5 billion stream will fund investments in renewable energy, energy efficiency and clean technology.
• Australian Renewable Energy Agency (ARENA): The Government has proposed establishing a new,independent statutory body – the Australian Renewable Energy Agency (ARENA). “The Australian Government is funding around $3.2 billion in renewable energy investment to promote the research and development of renewable energy technologies”.
• Carbon Farming Initiative: The Government proposes a Carbon Farming Initiative for farmers and landholders that take steps to reduce carbon pollution. It will do this by creating credits for each tonne of carbon pollution which can be stored or reduced on the land. These credits can then be sold to other businesses wanting to offset their own carbon.
• Clean Technology Investment Program: The program will support manufacturers by providing $800 million in grants to upgrade to less polluting equipment and cleaner technologies. It will boost their international competitiveness and help keep manufacturing strong. Funding will be provided on a co-contribution basis,with industry providing three dollars for every dollar provided by the Government.
• Clean Technology Food and Foundries Investment Program: The Government will provide $200 million in grants to help companies in food processors, metal forgers and foundries industries to upgrade to less polluting equipment and cleaner technologies.
• Clean Technology Innovation Program: The Government will provide grants of up to $200 million through the Clean Technology Innovation Program over five years to support business investment in renewable energy, low emissions technology and energy efficiency. This could support manufacturers to develop new clean technology products.
• Energy Security Fund: The Government proposes an Energy Security Fund. The Government will seek to negotiate the closure of around 2000 megawatts (MW) of generation capacity by 2020 and provide transitional assistance to the most strongly affected coal-fired power stations.

Carbon permits

• The Government will allocate Australian carbon permits to the most emissions-intensive and trade-exposed industries. This will shield eligible businesses from the full impact of a carbon price, while retaining incentives to reduce carbon emissions.
• The most emissions-intensive and trade-exposed activities will initially be eligible for 94.5 per cent shielding from the carbon price. A second category of assistance will provide an initial shielding level of 66 per cent of the carbon price. This will apply to activities assessed as having a lower risk of carbon leakage. LNG projects will also receive a supplementary allocation to ensure an effective assistance rate of 50 per cent, in recognition of the wide dispersion of emissions among some prospective LNG developments. The assistance rates will be reduced by a carbon productivity contribution’ of 1.3 per cent a year to provide additional incentives over time for these industries to reduce pollution.

Assistance for small business

• The Federal Government says that small businesses will benefit from being able to claim an immediate tax deduction for assets costing up to $6,500 under changes to business tax deductions. This will help business invest in more energy efficient equipment and help small businesses to respond to the carbon price. The small business instant asset write-off threshold will be increased to $6,500. This applies to businesses with a turnover of less than $2 million a year.

The Jobs and Competitiveness Program

• The Jobs and Competitiveness Program will support local jobs and production, and encourage industry to invest in cleaner technologies. The ongoing program will provide $9.2 billion of assistance over the first three years of the carbon pricing mechanism, targeted at companies that produce a lot of carbon pollution but are constrained in their capacity to pass through costs in global markets. Assistance will be provided to around 40-50 of these ‘emissions-intensive trade-exposed’ industrial activities, such as steel, aluminium, cement and zinc manufacturing. Businesses producing over 80 per cent of the manufacturing sector’s emissions are expected tobe eligible for assistance under this program.

Additional measures proposed by the Government:(additional to that agreed by Multi Party Climate Change Committee)

Treatment of heavy on-road transport

• The Government intends to apply an effective carbon price to fuel used by heavy on-road transport from 1 July2014 through changes in fuel tax credits. This will significantly broaden coverage of the carbon price as heavy on road vehicles account for over 25 per cent of road transport emissions. Moreover, as rail, domestic shipping and domestic aviation will face an effective carbon price, extending coverage to include heavy on-road vehicles will provide consistent treatment across the freight sector.

Steel Transformation Plan

• The Steel Transformation Plan will provide assistance worth up to $300 million over five years to encourage investment and innovation in the Australian steel manufacturing industry. This will help the sector transform into an increasingly efficient and economically sustainable industry in a low-carbon economy. The Steel Transformation Plan is designed to improve the environmental outcomes of steel manufacturing and promote the development of workforce skills.

Coal Sector Jobs Package

• The Coal Sector Jobs Package will provide assistance over six years to the most emissions-intensive coal mines. The Government has allocated $1.3 billion to this program.

Coal Mining Abatement Technology Support Package

• The Coal Mining Abatement Technology Support Package will provide transitional assistance to help the coal industry implement carbon abatement technologies. Assistance will be provided in the form of grants on a co contribution basis. The Government has allocated $70 million over six years to this program.

What are the implications for investors?

• The United Nations climate change conference in December may not renew the Kyoto agreement on carbon emissions. Simply, there has been a re-assessment of the climate change theory. While the Clean Energy Future documents warn of global warming and point to a similar situation in Australia, long-run figures from the Bureau of Meteorology indicate that the gradual upward trend in temperatures has occurred for almost 150 years. The risk isthat Australia ends up leading the world on an issue whether there is less agreement on the right response.
• The Government gives the impression that it has created the perfect tax – where no one is worse off, in fact some are better off, and Australia takes a lead over other countries to price carbon emissions. But if it was that easy and painless then Governments would have done it years ago.
• The simple fact is that there is a cost to the economy – the budget bottom line is worse off by $4.3 billion with much of that impact actually made in the current financial year. Employment and income are expected to increase with the carbon tax, but will do so at a slower pace than without the carbon tax.
• Foreign investors will continue to be cautious on investing in Australia. If the carbon tax is introduced and runs successfully then foreign investors may warm to Australia – but success is unlikely to be proven for a number of years. There are risks in Australia moving at a faster pace on pricing carbon than other countries. The economy will be negatively affected in the short-term, albeit modestly. And then there is the mining tax, which has yet to be passed by Parliament.
• The Australian dollar is unlikely to be significantly impacted. If anything the impact is mildly negative, but that clearly would be welcomed by miners, rural producers, manufacturers and tourism operators.
• The extent of change and uncertainty for the coal and steel sectors as well as manufacturers will lead to a softening of investment support in the short term.
• While the Government has been generous with income and taxation support for households, consumers are likely to remain sceptical. It is important to remember that household incomes have been rising but the sharp lift in the cost of living – especially gas and electricity bills – has still made consumers cautious about spending. Electricity and gas are inelastic goods meaning that substantial changes in prices lead to only small changes in demand.
• Any increase in the headline rate of inflation makes the Reserve Bank nervous. So the Reserve Bank is more likely to lean in favour of rate hikes in the first half of2012/13 as the new tax gets bedded down.The other risk relates to the potential for business to lift prices in response to higher electricity and gas prices.

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• Australia’s population grew by 69,703 people over the December quarter to 22,477,378. Annual population growth slowed from 1.57 per cent to 1.47 per cent – the weakest growth rate in almost five years.
• Despite businesses crying out for skilled migration, the Government’s reduction in the skilled migrant intake meant that in-bound migration hit a near 4-year low in 2010. Over 2010, 171,100 migrants came to Australia.
• There were 297,900 babies born in 2010 – holding just shy of the highest reading since quarterly records began 28 years ago (303,500 in March 2010).
• The financial wealth of Australians hit 3-year highs in the March quarter. But consumers and businesses are increasingly holding assets in cash or deposits.

What does it all mean?

• The Federal Government must shoulder the blame for the sharp slowdown in Australia’s population growth over the past year. Despite persistent calls for skilled migrants, the Government wound back the skilled migrant intake,exacerbating the tightness of the job market and contributing to the slowdown in the economy.
• In 2008, almost 316,000 migrants came to our shores but this slowed to 264,000 in 2009 and to a four-year low of 171,000 in 2010. The reduced number of migrants has contributed to upward pressure on wages and led to reduced demand for housing and slower retail sales. While the migrant intake has been lifted for the coming year,the question is whether it is sufficient. In order to cap wage growth, supply of labour has to keep pace with demand. The best way of ensuring this in the short-term is skilled migration as up-training of Australian jobless takes time. Further, there are doubts that this up-training can be successful in meeting the specific skilled labour shortages across the country.
• The Reserve Bank has been polite in pointing to the need for increased labour supply to meet higher demands. Arguably it should be more forceful in warning that if migration isn’t lifted, the risk is that interest rates will need to rise.
• Cash is king. Australia’s increasingly cautious consumers and businesses are continuing to hold their wealth in cash or bank deposits. And Australian companies are well into the black, with non-equity assets a record $130 billion more than the level of outstanding loans. The environment is much more akin to the 1950s or 1960s when people chose to live within their means and keep borrowings at low levels in relation to assets.
• Foreigners are losing patience with Australia, selling down their holdings of Australian shares in the March quarter. Our high dollar combined with mooted taxes on carbon emissions and mining profits are spooking foreign investors. Clearly this is a wake-up call for the Federal Government.

What do the figures show?

Population Statistics:

• Australia’s population expanded by 325,469 people over 2010 to 22,477,378 people. Overall, Australia’s population growth rate eased from 1.57 per cent to a five-year low of 1.47 per cent. Population growth had hit a40-year high of 2.20 per cent in the year to December 2008.
• A total of 171,100 people migrated to Australia over 2010, the lowest annual total in over four years (since the year to September 2006). The record high was 315,700 in-bound migrants over the year to December 2008.
• There were 297,900 babies born in 2010, just shy of the record 303,500 births in the year to March 2010.
• Population growth eased in all states and territories except the ACT in the December quarter. Over the past year population growth was fastest in Western Australia (2.09 per cent), followed by ACT (1.95 per cent), Queensland(1.70 per cent), Victoria (1.56 per cent), NSW (1.22 per cent), South Australia (0.95 per cent), Northern Territory(0.83 per cent) and Tasmania (0.77 per cent).
• Population growth in the ACT is at 3½ year highs. But population growth in Queensland is at 11-year lows with Northern Territory population growth at 7-year lows.

Financial Accounts:

• The net financial wealth of Australian households (assets less liabilities) rose for the third straight quarter, lifting by 2.4 per cent in the March quarter.
• Financial assets of households (such as shares, bank deposits) rose by $50.6 billion or 1.9 per cent in the March quarter to $2,651.3 billion. Of the total, 25.3 per cent was held in cash and deposits, above the long-term average of 22.7 per cent. Financial liabilities of households grew by $24.2 billion or 1.6 per cent to a record $1,545.5billion.
• Overall, net household financial wealth (assets less liabilities) rose by $26.4 billion to $1,105.8 billion at the end of the March quarter. Financial wealth is up 7.0 per cent on a year ago but is still down 8.1 per cent from the record high set in the September quarter 2007.
• Net household wealth per capita rose from $48,025 to $49,045. Per capita wealth is up 9.7 per cent over the past five years and up 40.8 per cent over the past decade.
• The household debt to liquid assets ratio rose by 1.2 percentage points to 161.9 per cent in the March quarter. The ratio shows that households do not have sufficient readily liquefiable assets to cover outstanding debt, highlighting a degree of vulnerability in the current economic environment.
• Foreigners sold $1.9 billion of Australian equities in net terms in the March quarter after buying $28.5 billion of equities in the December quarter. The Aussie dollar remained at historically high levels in the quarter, hitting 29-year highs of  US103.34c on March 31.
• Foreign investors held $585.4 billion of Australian listed shares as at the end of March quarter or 41.3 per cent of the total. While the share was modestly down from the December quarter it wasn’t far short of the 12-year high of 43.3 per cent in March 2009 (when the Aussie was at US68.7 cents).

• Assets held by superannuation funds (pension funds) rose by $20.6 billion (2.9 per cent) in the March quarter to $1,164.5 billion. Super funds held 14.7 per cent of assets in cash and deposits, down slightly from the 14.9 percent held in December and well above the long-term average of 8 per cent.
• Non-equity assets held by Australian companies (non-financial) stood at $682.7 billion at the end of March, a record $129.5 billion higher than loans. Short and long-term loans rose by $6.5 billion (1.2 per cent) to $553.3billion at the end of March. Companies held 30.9 per cent of assets in currency and deposits, just shy of the highest level in 11 years.
• The value of listed equities rose by just $16.9 billion (1.2 per cent) to $1,417.5 billion at the end of March. The value of currency and deposits rose by $45.1 billion (2.8 per cent) to $1654.4 billion.
• As at the March quarter, 19.6 per cent of assets were held in listed equities (19.8 per cent long-term average);20.1 per cent held in bonds (17 per cent average); 22.8 per cent held in cash and deposits (20.5 per cent average). Smaller than normal shares of assets were held by unlisted equities (20.4 per cent, compared with 24.1per cent average) as well as bills of exchange, accounts receivable, derivatives and one-name paper.

What is the importance of the economic data?

• Demographic Statistics are issued by the Bureau of Statistics each quarter. The figures include estimates of births, deaths, in-bound and out-bound migration movements and estimates of population change by State.
• The Australian Bureau of Statistics releases the Financial Accounts publication each quarter. The data covers assets, liabilities and financial flows for the key sectors of the economy. Figures on financial wealth help reveal the true state of household finances.

What are the implications for interest rates and investors?

• The conservatism expressed by consumers and businesses in conducting their financial affairs has further watered down the risk of a near-term rate hike.
• The Federal Government must closely assess the labour needs of Australian businesses. The sharp fall inmigration inflows over the past year has served to weaken the economy and added to the tightening of the jobmarket.
• The under-performance of the Queensland economy and out-performance of the ACT economy have much to do with population flows.
• Foreigners are losing patience with Australia. Australian equities have become more expensive, courtesy of a high dollar, but the risks of investing in Australia continue to rise with mooted carbon and mining profit taxes.

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• In a speech by RBA Assistant Governor
  (Economic) Philip Lowe entitled “Inflation: The Recent Past and the Future”
  , Mr Lowe has reiterated that the RBA believes underlying inflation will lift only slowly, and over a matter of years rather than months.
• Philip Lowe didn’t flag any near-term implications for rates, noting: “While conditions are very strong in parts of the economy, other parts are finding things very difficult.”
• Clearly the RBA remains in ‘wait and see’ mode.

What did the speech cover and what does it all mean?

• The speech by the Reserve Bank Assistant Governor was entitled “Inflation: The Recent Past and the Future”and indeed that’s what it covered: “First, I will talk in some detail about the distinct cycle in underlying inflation that we have seen in Australia over the past six years or so. After that, I will discuss the lessons that we might take from this cycle, as well as the broader lessons we have learnt from the past two decades of inflation targeting in Australia.”
• At the outset, Philip Lowe confirmed that underlying inflation was expected to lift very gradually: “As the RBAdiscussed in the latest Statement on Monetary Policy, this decline in underlying inflation looks to have now run its course and a gradual rise is expected over the next couple of years.”
• This statement is important as a number of analysts had previously interpreted RBA commentary as suggesting a relatively quick upturn in inflation, suggesting that a rate hike was imminent. But Lowe suggests a much more gradual increase for underlying inflation, currently in the lower end of the 2-3 per cent target band.
• Philip Lowe also discussed the models developed by the RBA to track inflation and their track records. He noted that the “amplitude and timing” of the inflation cycle since 2005 surprised the RBA: “The general picture that one gets from this analysis is that underlying inflation in Australia was slower to pick up than suggested by the historical relationships, but when it did eventually pick up, it did so more quickly, and by a larger amount, than suggested by these relationships.”
• The RBA has assessed the experience over that period in an attempt to be better understand the weaknesses in the models and to improve future forecasts. He focussed on unit labour costs, housing costs and international factors.
• While there is a long-run relationship between unit labour costs (basically wages adjusted for productivity) and inflation, the short-term relationship “is not nearly as tight.” In other words, unit labour costs aren’t very useful in short-term forecasting models of inflation.
• Mr Lowe believes that factors other than wages are more useful in describing inflation since 2005 – such as housing cost inflation.
• Philip Lowe indicated that changes in home prices, rents and utilities “do help explain the particular dynamics of inflation over the recent cycle.”
• In this context, it’s worth noting that home prices are now falling while utility prices have been rising, making it difficult to be precise about the influence on housing costs on future inflation outcomes.
• In terms of international factors, Philip Lowe highlights the similarity of movements in headline inflation rates across the globe. Lowe also examined the influence of the exchange rate. But overall he didn’t find that international factors were overly helpful in explaining the inflation cycle since 2005: “Overall though, these swings in the exchange rate have played only a relatively minor role in explaining the recent cycle in underlying inflation which has been primarily driven by domestic factors.”
  

Implications

• Philip Lowe concludes that capacity utilisation is the best explanation for the inflation experience since 2005: “So to summarise, an important lesson from this recent experience is that inflation responds to the changing pressures on capacity in the economy. When demand is high relative to the economy’s capacity to produce goods and services, the cost of labour and raw materials tend to rise and firms’ mark-ups tend to increase. Conversely,when demand is low relative to the economy’s capacity to produce goods and services, these pressures ease and inflation tends to fall.”

So where does all this leave monetary policy?

• The Reserve Bank Assistant Governor is far from clear. There is a boom in mining, but other sectors are finding things very difficult. Low also notes that only a very small proportion of items in the CPI are currently rising more than average. The RBA believes its best contribution is to keep rates low, but there is no short term guidance. The RBA is clearly in wait and see mode.
• “Looking ahead, as the Bank has discussed recently, the current environment is a particularly challenging one. In the central scenario, we are looking at a significant boom in investment in the resources sector at a time when the overall economy has relatively little spare capacity. While conditions are very strong in parts of the economy, other parts are finding things very difficult because of either the high exchange rate or the ongoing restraint in household spending and borrowing. And to add to the complications, global commodity prices are undergoing a structural shift as hundreds of millions of people in Asia enter the global economy.
• It is not easy to navigate our way through this difficult environment. The new realities of the global economy have improved Australia’s medium-term prospects. At the same time though, they are causing considerable structural change in the economy which is leading to difficulties in a number of areas. As Australia takes advantage of its new opportunities and manages the process of structural change the task for the RBA is to keep inflation low and stable.”

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• There appears light in the tunnel for retailers. A key measure of economy-wide spending is now edging slightly higher after contracting for most of the past year. The Commonwealth Bank Business Sales Indicator (BSI) was broadly flat in trend terms in May (actually up 0.02 per cent). Revised figures now indicate that the BSI has been flat to slightly higher from February after contracting for 14 consecutive months.
• Only four of the 20 industry sectors contracted in trend terms in May – a similar result to April – but amongst those was the large Retail stores category that accounts for 28 per cent of the index.
• 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 broadlyacross the economy rather than just retail sales, including spending on automobiles, personal services and airlines.

What does it all mean?

• Business Sales were relatively flat in May, an encouraging sign following declines in recent months, according to the latest Commonwealth Bank Business Sales Indicator (BSI).
• The BSI is a key measure of economy-wide spending, tracking the value of credit and debit card transactions processed through Commonwealth Bank point-of-sale terminals, a sample of approximately 30 – 40 per cent of the Australian market. The BSI posted a gain of 0.02 per cent in May.
• The latest figures were a further testament to the stagnant nature of consumer spending but also revealed sectors that were actually benefiting from outside market forces.
• The Amusement & Entertainment category continued to post positive gains, as especially cold weather in May looks to have driven consumers indoors to venues including cinemas and bowling alleys. Utilities is another sector that has seen similar gains, with the weather again being the likely cause as households consume greater levels of electricity to keep warm.
• The latest results have also given more clarity on recent sales trends, following March and April which had been disrupted by events such as the extended Easter break. The trend results now show that February to April 2011 was a period of flat, to slightly firmer economy-wide spending – an important result suggesting that sales have actually been a little better than initially thought.
• Having said that the gains being witnessed are minor and it’s unlikely that the pattern will change anytime soon. Combined with the weaker economic data seen recently, we would therefore expect the Reserve Bank to remain on the interest rate sidelines.

What do the figures show?

Business Sales Indicator April 2011

• The Commonwealth Bank Business Sales Indicator (BSI) was broadly unchanged in trend terms in May (actually up0.02 per cent). As we noted last month, results for March and April are traditionally harder to analyse given changes in timing of Easter from year to year, affecting the seasonally adjusted and trend results that are produced by statistical programs. So the receipt of the May results enables greater clarity on recent sales trends.
• The trend results now show that February-April 2011 was a period of flat, to slightly firmer economy-wide spending rather than slight declines in spending. The results are encouraging given that the BSI fell in trend terms in each month of 2010.
• 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. This allows analysis of the broader underlying trends that may be hidden in the raw data.
• The majority of industry sectors are still recording spending growth in trend terms. Only four of the 20 sectors reported weaker spending in trend terms in May, a similar result to both March and April.
• Amongst the sectors to record weaker growth was the largest sector – Retail stores – down by 0.3 per cent and Automobiles & Vehicles (includes services stations as well as car and boat dealers, tyre and auto parts stores) with sales down 1.0 per cent.
• The strongest lift in spending in trend terms was by Amusement & Entertainment (includes motion picture theatres, bowling alleys, golf courses and video stores), up 1.4 per cent, followed by both Contracted Services (includes building trades such as electricians as well as veterinary services) and Utilities (both up 0.9 per cent) and Repair Services and Personal Service Providers (both up 0.5 per cent).
• In annual terms, five of the 20 industry sectors contracted in May, up from four sectors in April. The weakest sector was Mail Order and Telephone Order Providers (down 6.9 per cent on a year earlier), followed by Automobile & Vehicles (down by 6.3 per cent) and Miscellaneous Stores (down 4.5 per cent).
• At the other end of the scale, spending at Contracted Services was strongest, (up 14.1 per cent), followed by Amusement & Entertainment (up 12.3 per cent) and Professional Services & Membership Organisations, (up by8.2 per cent).
• Six of the states and territories recorded weaker sales in trend terms in May, up from five in April. The weakest result was in NSW (down 1.9 per cent), followed by South Australia (down 1.2 per cent), Northern Territory (down0.6 per cent), Victoria (down 0.4 per cent) and Western Australia and Queensland (both down 0.3 per cent). Of the other states and territories, strongest was ACT (up 0.8 per cent), followed by Tasmania (up 0.1 per cent).• The ACT has shown been consistent growth over the past eight months. In contrast, sales in South Australia have consistently softened over the period with the rate of decline accelerating over the past three months.
• In annual terms, only the ACT is recording growth (up 2.3 per cent), with Western Australia and Tasmania next best (both down 2.4 per cent).

What is the importance of the economic data?

• The Commonwealth Bank Business Sales Indicator is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities throughout Australia. The Business Sales Indicator is compiled monthly and covers 20 industry sectors and all Australian states and territories.
• Credit and debit card transactions can be volatile on a month-to-month basis, affected by seasonal and irregular factors. To better gauge the direction and changes of spending across the economy, the Business Sales Indicator is tracked in trend terms.
• The monthly Business Sales Indicator has been devised to provide a more timely assessment of spending trends in the economy. The main monthly indicator of spending in the economy is the Australian Bureau of Statistics’ (ABS) Retail Trade release. However these statistics cover just spending at retail establishments, and exclude spending at a raft of other businesses.

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• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 1.1 cents per litre to 140.2 cents a litre in the week to June 19.
• Global oil prices recorded a sharp fall in the past week which should translate into lower pump prices in a fortnight’s time. The Singapore unleaded price fell by almost US $7 a barrel in the past fortnight. CommSec expects pump prices to fall by around 3-5 cents a litre in a fortnight’s time.
• Since the peak on May 10, the national average wholesale (terminal gate) price has fallen by 6.5 cents a litre while the national retail price has fallen by 5.7 cents since the peak.

What does it all mean?

• After sliding for five consecutive weeks petrol prices have once again recorded a rise in the past week. But there is certainly more good news for motorists around the corner. On the global front oil prices have recorded some pretty dramatic falls. In fact the Singapore unleaded price has slumped by almost US $8 a barrel in just over a week – a result that should ensure that petrol prices across Australia fall by around 3-5 cents a litre in a fortnight’s time.
• Given the lack of momentum in the domestic economy a further fall in petrol prices will be a welcome result. The drop in petrol prices will help to support confidence and spending power. In fact since the average monthly household fuel bill has fallen by almost $7 to $196 a month in the past six weeks. And given the recent weakness in consumer and business confidence any improvement in household finance should provide at least a modest degree of support in shoring up sentiment.
• Importantly the global oil market has been well supplied at present, and given the concerns over global growth, oil prices should hold around current levels in the near term. In addition the decision by Saudi Arabia to increase oil production in contrast to OPEC is certainly a positive and should keep petrol prices subdued in coming months.

What do the figures show?

Petrol prices:

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 1.1 cents a litre to 140.2 cents a litre in the week to June 19. The metropolitan price rose by 1.8 c/l to 139.0 c/l,while the regional average price fell by 0.2 c/l to 142.7 c/l.

• Average petrol prices across states over the past week were: Sydney (rose 4.5 cents to 137.0 c/l), Melbourne (up0.4 cent to 139.5 c/l), Brisbane (up 1.0 cent to 140.8 c/l), Adelaide (up 3.2 cents to 140.1 c/l), Perth (down 0.4cents to 138.2 c/l), Darwin (down 0.3 cents to 153.6 c/l), Canberra (down 1.6 cents to 138.0 c/l) and Hobart (down 0.4 cents to 146.4 c/l).
• The national average wholesale (terminal gate) rose by 1.3 cents over the past week to 131.95 cents a litre today.Since the peak on May 10, the terminal gate price has fallen by 6.5 cents a litre. The retail price has fallen by 5.7 cents since the peak.
• Last week, the key Singapore unleaded petrol price fell by US$6.80 (5.5 per cent) to US$118.36 a barrel. In Australian dollar terms the Singapore gasoline price fell by $5.63 (4.8 per cent) over the week to $112.49 a barrel.

What is the importance of the economic data?

• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum. 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.

What are the implications for interest rates and investors?

• A further fall in petrol prices will be beneficial for the economy. Retailers already have to contend with the effects of the weather on seasonal spending, consumer conservatism and higher utility prices.
• Filling up the car with petrol is the single biggest outlay that Aussie households make each week so changes in petrol prices have a big impact on the budget and spending patterns. The average household is paying almost $7 less on fuel than they were just six weeks ago. However a look at a longer time frame shows that households are spending an additional $30 a month more on petrol compared with just over ten months ago.

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• Lending slides again. Total lending finance fell for the third time in four months, dropping by 3.8 per cent in April to near 5-year lows. Lending is down 3.4 per cent over the year. In trend terms lending is at 8-month lows.
• The average credit card balance barely budged in April, up just $4.50 to $3,325.70. The average balance is up just 2.9 per cent on a year ago – below the rate of inflation.
• Consumers prefer to use their own money to purchase goods. Purchases made on debit cards were up by 22.2 per cent on a year ago, while purchases made on credit cards rose by just 4.6 per cent.

What does it all mean?

• The “new conservatism” appears here to stay. Not only did new lending slide again in the latest month to be back near 5-year lows but the average balance outstanding on credit cards is continuing to fall in real terms. While consumers and businesses haven’t declared debt to be “bad”, they are distinctly wary about taking on loans or credit obligations.
• The “new conservatism” is no better illustrated than in the way that consumers prefer to pay for their goods.Purchases made on debit cards are growing at four times the pace as spending made with credit cards.
• Australia’s economic momentum will continue to be restrained by the negligible pace of lending and credit use. In part the reluctance to take on debt gets down to a lack of confidence and in part it reflects concern about the cost of debt. At face value, the cash rate doesn’t seem super-high but it is certainly biting.
• You only have to lift interest rates if you need to slow the pace of the economy or check inflationary pressures. It is clear from recent data that the economy is sluggish and inflation is well contained, ensuring the Reserve Bank stays on the sidelines for the time being.

What do the figures show?

Lending Finance:

• Total new lending commitments (housing, personal, commercial and lease finance) fell by 3.8 per cent in April – the third fall in four months. Lending had lifted 6.8 per cent in March after dropping by 5.8 per cent in February. Lending totalled $50.7 billion in April, down 3.4 per cent over the year.
• All housing finance (owner occupier & commercial) rose by 6.0 per cent in April – the first rise in four months –after easing by 1.2 per cent in February.
• Commercial finance fell for the third time in four months, sliding by 8.8 per cent in April. Within commercial commitments, fixed lending fell by 11.8 per cent while revolving credit fell by 1.8 per cent. Commercial loans are down 5.3 per cent on a year ago.
• Personal finance rose by 0.4 per cent in April, the second gain in five months, after a modest 0.6 per cent increase in March. Fixed lending commitments rose 3.3 per cent, while revolving credit commitments fell 2.8 percent. Personal loans are down 9.2 per cent on a year ago.
• Lease finance rose by 2.3 per cent in April after rising by 11.2 per cent in March and falling by 11.6 per cent in February. Lease loans are up 21.2 per cent over the year.

Credit & debit card activity:

• Figures released from the Reserve Bank show that the average credit card balance rose by just $4.50 to $3,325.70 in April. The average credit card balance is up 2.9 per cent on a year earlier. The number of credit card accounts rose by just 1.9 per cent over the year to April – the slowest pace in 13 months.
• Of credit cards attracting interest charges, the average outstanding balance fell by $1.20 to $2,450.20. The average balance accruing interest is up 3.4 per cent on a year ago.
• The number of credit card cash advances fell by 8.6 per cent in April, the fourth decline in five months. Credit card advances are now down 6.1 per cent on a year ago and have largely been falling in annual terms for fouryears.
• The number of purchases made on credit cards in April was up by 4.6 per cent on a year ago. In contrast total debit card transactions were up by 22.2 per cent on a year ago – just short of the fastest growth on record. EFTPOS only transactions were up a record 25.4 per cent on a year ago.

What is the importance of the economic data?

• Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal,commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.
• 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?

• Banks will have to work increasing hard to get consumers and businesses to take on new debt obligations. The tough business conditions will restrain margins and profitability.
• The lending and credit card data readings are the latest in a long line of indicators pointing to no change in interest rate settings for the time being. Next test is a speech by the Reserve Bank Governor tomorrow.

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• The number of new owner-occupier housing loans rose by 4.8 per cent in April after falling by 1.1 per cent in March. The number of loans is 3.1 per cent higher than a year ago
• Loans for the purchase of newly erected dwelling rose by 9.0 per cent in April after sliding by more than 28 per cent in the prior four months.
• Loans for the construction of homes rose by 0.4 per cent in April however were still down 11.8 per cent on a year ago.
• The value of investment loans fell by 1.6 per cent in April to $6.04 billion – a two year low. Investment loans are now down 15.9 per cent on a year ago.

What does it all mean?

• The latest improvement in the housing finance figures is certainly a welcome sight. Over the past few months the housing sector has certainly come off the boil and the modest gain in April is encouraging. However few more months of healthy gains will be required to claim a revival in the fortunes of the housing sector.
• Rather than focusing on just one month’s data the broader picture highlights that conditions in the housing sector are soft. Buyers have been holding off on purchases in all areas. Loans for the construction of new dwellings – a key forward looking indicator for activity housing activity – is still down by almost 12 per cent on a year ago. While loans to purchase newly established dwellings is still down a cumulative 20 per cent in the past five months, and that is despite the nine per cent jump in April. Clearly the recent weakness in house prices is unlikely to turn around anytime soon.
• The natural disasters earlier in the year have no doubt had a negative effect on the housing sector, but rather than being the primary reason for the sharp downturn in housing activity it is more a peripheral issue that has compounded an already weak housing sector. Of more importance it is the impact of last year’s rapid fire interest rate hikes that is still being felt across the economy.
• Owner-occupied loans remain weak but the area that is most disappointing is the weakness in investor finance. In fact investor finance has now fallen for four straight months and is now almost 16 per cent lower than a year ago. The slump in investment loans is yet another sign that potential investors believe that property prices are in for a period of consolidation, and as such can afford to take their time on investment decisions – especially given the likelihood of further rate hikes over the coming year.
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What do the figures show?

Housing Finance

• The number of new owner-occupier housing loans rose by 4.8 per cent to 47,342 new commitments in April –marking the first rise in four months. The number of loans is now up 3.1 per cent higher than a year ago.
• Loans for the construction of homes rose by 0.4 per cent in April to 4,553 – still well below the decade average of4,916. Loans for the purchase of established dwellings (ex refinancing) rose by 5.8 per cent, while loans for the purchase of newly erected dwelling rose by 9.0 per cent. However newly erected home purchases are still down 7.2 per cent on year ago. Refinancing commitments were higher by 3.7 per cent.
• The value of new housing commitments (owner occupier and investment) rose by 3.7 per cent in April. Owner occupier loans surged by 6.3 per cent while investment loans fell by 1.6 per cent.
• Banks accounted for 91.4 per cent of all loans taken out in April down from 91.5 per cent in March.
• The proportion of first home buyers in the market fell from 16 per cent to 15.8 per cent in April – well below the decade average of 18.2 per cent. Fixed rate loans accounted for just 5.6 per cent of all loans in April, down from 6.8 per cent of loans. And the average home loan across Australia stood at $289,600, up 0.5 per cent on a year ago.

What is the importance of the economic data?

• 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?

• 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. Given the subdued near term economic conditions it is unlikely that the Reserve Bank will be raising interest rates anytime soon.
• The long term fundamentals for the economy remain sound. The job market remains tight, wage growth is healthy and housing affordability is tracking sideways. The rebuilding phase after the floods will support housing activity,and in turn drive up economic growth, in the second half of the year. CommSec doesn’t expect the next rate hike to take place until at least August but there is also the risk that rate increase may be delayed until much later in the year.

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