• 

  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.

The post Home loans lift but first home buyer share at record lows appeared first on AdviserVoice.

• 

  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.

• Petrol prices drop: According to the Australian Institute of Petroleum, the national average Australian price of petrol fell by 4.0 cents per litre to 151.3 cents a litre in the week to July 6. The national average petrol price has traded between 149-158 cents over 2014.
• Discounting cycle: Petrol prices in Sydney, Melbourne, Brisbane, and Adelaide peaked well over two weeks ago and are at present at the low point in the cycle. Prices should lift over the coming days and peak towards the end of this week.
• Business conditions and confidence: The NAB business confidence index rose from +7.3 points to +7.9 points in June. The business conditions index rose from -0.8 points to +2.3 points. The survey was conducted from June 24 to June 30.
• Consumer confidence stabilises: The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.3 per cent in the week to July 6 but was still up by 1.8 per cent over the month and up 5.8 per cent on the lows recorded in late May.

The NAB business survey has components that track broader economic variables such as employment, exports and consumer spending. Businesses can benchmark their experiences against industry and state results. The petrol figures and consumer sentiment data have implications for retailers, especially petrol marketing groups.

What does it all mean?

• Over the past couple of months the business sector has been a lot more upbeat than consumers on the outlook and now conditions are also showing signs of improving. This is in stark contrast to the slide that was noted in consumer confidence in the past couple of months. Business confidence has actually edged up slightly over the past month. And now with the Budget retreating from media headlines, greater focus can be placed on Australia’s good economic circumstances.
• Even consumer confidence is showing signs of having bottomed out. And as the lift 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.
• Encouragingly inflationary pressures are benign with businesses actually noting that labour costs and purchase costs eased in June.
• 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.
• The national petrol price has lost relevance as an indicator of petrol price trends due to the vagaries of the discounting cycle. One week the price is up 4-5 cents, the next week it’s down 4-5 cents. In just the past three weeks petrol price has swung through a 15-17 cent range across Sydney, Brisbane and Melbourne.
• The good news for motorists is that the national average fuel price fell to the low $1.50s a litre last week. The slide in the national price was largely due to the discounting cycle. In Sydney, Melbourne, Brisbane and Adelaide, petrol prices are currently at the low point in the cycle. In fact petrol is trading near wholesale prices at Sydney, Melbourne and Adelaide pumps. Prices are likely to drift higher with the peak in the cycle likely to be later this week.
• Global oil prices are edging lower, reflecting the recent improvement in the geo-political situation in the Middle East. Last week, Libyan export capacity lifted by around 500,000 barrels per day as rebels blockading eastern oil ports agreed to reopen the remaining two terminals. No doubt the Middle East political situation and the volatility of the Australian dollar will be driving factors that determine pump prices in coming months.

What do the figures show?

National Australia Bank Business Survey:

• The NAB business confidence index rose from +7.3 points to +7.9 points in June. The business conditions index improved from -0.8 points to +2.3 points.
• The index of trading conditions strengthened from +1.5 points to +6.6 points; employment weakened from -0.1 points to -2.6 points; profitability strengthened from -2.6 points to +3.1 points; forward orders improved from 0.0 points to +0.4 points.
• Inflationary pressures were largely flat in June. The monthly reading of labour costs rose at a 0.6 per cent quarterly rate in June after a 0.7 per cent rise in May. Purchase costs rose at a 0.3 per cent quarterly rate in June, after a 0.4 per cent rise in May. Final product prices rose by 0.1 per cent after a 0.1 per cent rise in May. Retail prices lifted 0.2 per cent in June, after a flat result in May.
• Capacity utilisation eased from 80.2 to 79.3 in June, below the long-term average of 81.2 per cent.
• The proportion of firms reporting that they did not require credit rose from around 45 per cent in May to around 65 per cent in June.

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 4.0 cents a litre to 151.3 c/l in the week to July 6. The metropolitan price fell by 5.5 c/l to 149.1 c/l, while the regional average price fell by 0.6 cents per litre to 156.0 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 8.2 cents to 147.5 c/l), Melbourne (down by 5.7 cents to 147.0 c/l), Brisbane (down by 7.4 cents to 149.4 c/l), Adelaide (down by 5.8 cents to 145.9 c/l), Perth (up by 1.2 cents to 154.0 c/l), Darwin (unchanged at 173.0 c/l), Canberra (unchanged at 157.2 c/l) and Hobart (up by 0.2 cents to 160.9 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands 143.0 c/l, down around 1.6 cents over the week. Petrol is trading near wholesale prices at Sydney, Melbourne and Adelaide pumps.
• Last week the key Singapore gasoline price fell by US$1.60 or 1.2 per cent to US$127 a barrel. Yesterday the Singapore gasoline price fell further to a 3-week low of US$125.10 a barrel. In Australian dollar terms the Singapore gasoline price fell by 66c a barrel or 0.5 per cent last week to $123.19 a barrel or 85.29 cents a litre.
• Figures from MotorMouth show that petrol prices in Sydney, Melbourne, Brisbane, and Adelaide peaked well over two weeks ago and are at present at the low point in the cycle. Prices should lift over the coming days and peak towards the end of this week.

Consumer sentiment:

• The ANZ/Roy Morgan consumer confidence rating fell by 0.3 per cent in the week to July 6 after falling 0.3 per cent in the previous week and lifting by 2.4 per cent in the week to June 22. Over the month, confidence rose by 1.8 per cent. The confidence rating is up 5.8 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.
• 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.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
• Business confidence and conditions are good without being great. 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 higher 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.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

What are the implications for interest rates and investors?

• Business confidence and conditions are good without being great. 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 higher Aussie dollar continues to hamper rebalancing efforts across the economy.

The post Business outlook improves; Petrol set to rise appeared first on AdviserVoice.

Housing finance; NAB Business survey

• Record home loans: The value of all home loans rose by 0.2 per cent to record highs in December.
• The number of new owner-occupier housing loans fell by 1.9 per cent in December, just the second fall in the past the past 11 months.
• First home buyers accounted for just 12.7 per cent of all loans in December, lifting from record lows.
• Business conditions at 34-month high: The NAB business confidence index rose from +6.3 points to +7.8 points in January. The business conditions index improved from +3.4 points to a 34-month high of +4.4 points. The survey was conducted from January 28 to February 3.

What does it all mean?

The post Home loans hit record highs appeared first on AdviserVoice.

So you’re back at your desk and starting to wind up for 2014 after some time away from the inevitable, accumulated, end of year mental fatigue. Last year was a reasonable year in the markets – no major market-wide collapses at least – and with fingers crossed you’re hoping 2014 will at worst be similar.  There’s a new government in Canberra and improving consumer confidence albeit somewhat labile; interest rates remain low and while the December quarter inflation edged up a tad interest rates look stable for the time being. Nevertheless, the RBA still has inflation leg-roped and with glacial like regularity, pockets of good news continue to emerge from the USA and to a lesser extent Europe. But will portfolio construction be that straight forward from 2014 on? And what messages are you giving your clients about the foreseeable future for portfolios?

While portfolio construction and ongoing management is but one aspect of the services provided by an adviser, for many consumers it remains the reason why they seek initial advice and ongoing service. It is, for many, the yardstick by which they measure the value for money they believe they are receiving.  So getting portfolio construction right more often than not remains a central part of an adviser’s service offering.

A changing landscape

Although the Australian economy has run counter cyclically to much of the developed world since the GFC, it’s clear that the dream run might be nearing an end if not already over. Trends from the most recent business and consumer confidence surveys point to the private sector looking further down the road than a change of government, low interest rates and Christmas retail sales.  It (business) is getting well and truly under the bonnet and finding reasons to be concerned.  The rest of the developed world – while less critically situated than five years ago – remains delicately poised between another crisis and a sluggish, elongated, recovery.

Chart 1: 5 years of a downward trend in business conditions. Is business confidence, after a momentary lift in 2013, now reverting to trend? Source: RBA, NAB.

While business confidence surveys have tracked a choppy path since the GFC, over the last three years consumer sentiment measures have been trending upward with associated peaks and troughs.  For advisers, the trend differential between consumer and business confidence measures should be noted.

Chart2: Source: RBA

The parallel of confidence between consumers generally and the value of yearly housing finance approvals (Chart 3 below) results in an almost mirror image of data outcomes in recent years. As consumers leave the GFC behind them up go home loan approvals.

Chart 3: Housing Loan Approvals

Source RBA Chart Pack

While first home buyers, especially those in some capital cities, still appear to be shut out of the market, it’s noteworthy that the value of housing loan approvals appears to have breached the pre GFC peak. In contrast, however, consumer sentiment is yet to reach the pre GFC levels.

Looking at the currency, with the A$ at around $0-90 US and a forecast continued downward trend there might a period of ‘imported’ inflation waiting in the wings which, to some extent, more broadly, should be offset by more competitive pricing of Australian exports.

However, some large companies with decades of drip feeds of government funding, are beginning to sound the retreat while a previously government owned business is now calling for greater protection on international air routes to and from Australia.  Calls for increased productivity and an apparent coalescence of labour pressures in the mining, energy, motor vehicle manufacturing, retail and public sectors and it’s apparent Australians that have a job are going to be asked to do even more in their working week.

Added to this palette of conditions is that the ‘asset bubble’ descriptor is being cast about like confetti for certain investment sectors here and overseas.

Welcome to portfolio construction 2014/15/16…

And for your clients this means?

For your clients this means you need to be reviewing your asset allocation models and run some scenario planning across them.

• What if, the A$ fell to under US$0-80 cents? What does that do to your GDP growth expectations? What does it mean for inflation? What are the implications for international assets – should you be recommending higher weightings to get the currency ‘free-kick’? Or should you not?

• What if unemployment rises (e.g. resultant of mass lay-offs in the motor vehicle industry and the knock-on impact through the supply chain), consumption falls and business investment halts?

• What if the A$ finds some buoyancy and the RBA moves rates lower again in an attempt to reduce the relative attraction of Australian interest rates in world markets? What if still lower rates results in a rush of confidence in the housing sector pushing prices higher again and eventually leading to interest rate rises and a further strengthening of the A$?

• What if the recent December quarter inflation data pushes the interest rate levers toward a rate increase?

• What if unemployment were to hit 10% and what if Australia were to enter its first recession in more than two decades?

• What if… by now you should be getting the picture.

Relatively straightforward portfolio modeling spreadsheet techniques should allow you to understand the potential outcomes of these and myriad other future scenarios.

• What happens to your clients’ income returns and what can you do about it within the risk parameters for clients?

• What about portfolio growth? Will there be any and if so what might the risks be?

In investing terms, income and growth (or the lack thereof) are all you’ve got to show clients over any length of time so it’s crucial that you set your clients’ expectations within the realms of feasible outcomes. And this is the most crucial point; while your scenario planning findings might give cause to alter your portfolio asset allocations, it’s what you tell your clients to expect which will impact most greatly on their assessment of the value they receive from you versus what it costs them.

There is an adage: ‘Under promise and over deliver’ and for financial advisers it should be their morning mantra when they settle into each day’s diary of appointments. As an adviser, you have a very large influence on what your clients’ expectations of portfolio performance outcomes will be. Paint a picture too rosy and you’re going to ratchet up the risk of complaints and losing clients if markets behave in a manner different to what your clients are expecting. Paint a picture of the real world conditions and clients will, if nothing else, see that you’re across your brief of looking after their money.

This is not about being pessimistic – far from it. The overriding goal here is to be realistic with your clients. It’s about understanding what you can and cannot influence.

You have absolutely no ability to influence world economic performance and market returns. You, in isolation, have no capacity to alter government fiscal policy. You have no control over world events. You have no ability to rewrite nightly news bulletins that will greatly influence whether or not consumers – your clients – will be confident or pessimistic. You cannot influence investment decisions made by boards of companies. None of these are within your sphere of influence or capability.

What you can do, however, if you stay well informed about the major economic data for Australia and overseas, is form a view as to what might lie ahead for your clients’ portfolios.  It automatically follows that if you and your colleagues are forming a ‘house view’ on what might be coming down the investment return pipeline for clients, you can then begin to prepare clients for it.

You can be sure of one thing: clients have a great dislike for surprises on the downside of portfolio returns. However, falling values and periods of weak performance are part of the journey of long-term investors so it’s beholden of advisers to get their clients ready for such times.  A disciplined approach to this sees advisers ready their clients with realistic commentary about current conditions, and what might lie ahead, during regular client meetings and presentations and through all written communications.

Walk the walk

That however, is not sufficient – your job is not done until client portfolios reflect the ‘house view’ of the potential economic and market conditions. It’s one thing to be a good, realistic, communicator, but you have to follow through and be a good asset allocator.  While allocation models will vary over different client age groups with younger clients having more time to withstand extended periods of major economic and market downturns, all clients need to be given realistic expectations. Young clients listen to daily news bulletins; young clients get nervous about their financial security and young clients don’t like to be surprised.

No surprises for you

And while we’re on the topic of surprises, you should never be blindsided by economic and market events unless they result from acts of terror or sudden outbreaks of war.   On this point, even the US’s Central Intelligence Agency had no idea that Iraq was going to invade Kuwait in 1990 so there will always be a risk that events can overtake you and your clients’ portfolios.

That exception notwithstanding however, it is entirely possible for every financial adviser (anywhere in the world) to gain great insight into the Australian and world economy through the monthly publication of the Reserve Bank of Australia’s ‘Chart Pack’. Around 80 charts can be downloaded, at no cost, every month and the information can readily form the foundation of how you and your colleagues develop your ‘house view’ of economic conditions and investment trends. That information along with other sources of data can greatly assist in your asset allocation scenario planning.

It could be argued that the most important thing an adviser can do for all her clients is to be realistic with them. While it is the subject for another paper, it’s arguable to that setting realistic expectations for clients is part and parcel of the ethical conduct expected of a fiduciary.

While that might be so, you cannot be realistic with clients unless you understand what’s happening in economies and markets here and internationally. And you cannot be realistic with clients unless you take that information and develop of view of what could lie ahead for clients and then communicate that to them. While nothing is ever guaranteed to occur, better to be have formed a view and prepared clients than for both you and your clients to be blindsided.

Think about it

And one final suggestion. In professional practice, with all the day to day commercial pressures, the daily random noise of market news and commentary, dozens of emails and phone calls, and now the pressure of social media marketing, it can be difficult to find the time to give proper consideration to what the data is telling you.  Take the time to schedule ‘thinking time’ into your month so you really can get an understanding of what’s really going on in the world.  Be that an hour or so or an entire morning, it will be a great investment of time in being able to set clients’ expectations in real terms.

Note: The accreditation for this CPD article is no longer current. Please visit our CPD section for current CPD quizzes. 

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NAB Business survey; Weekly petrol prices

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  Business conditions at 33-month high: NAB

  Petrol prices ease: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 1.0 cent per litre to 154.1 cents a litre in the week to January 26. CommSec expects fuel prices to lift by 2 cents a litre over the next fortnight.

• Higher prices ahead: The wholesale (terminal gate) petrol price stands at 145.02 c/l, up 1.0 cent a litre over the week. Over the past week the key Singapore unleaded petrol price rose by rose by $4.91 in Australia dollar terms to $136.41 a barrel – a 28-month high.
• Business conditions at 33-month high: The NAB business confidence index eased from +6.1 to +5.8 in December. The business conditions index improved from minus 2.9 points to a 33-month high of +4.2 points. The survey was conducted from January 9 to 15.

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Housing finance; NAB Business survey

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  Owner-occupier housing loans rose in October.

  Home loans lift: The number of new owner-occupier housing loans rose by 1.0 per cent in October, the ninth increase in the past 10 months. The value of all home loans rose by 4.1 per cent to record highs.

• First home buyers accounted for just 12.6 per cent of all loans, up from the record low of 12.5 per cent in September.
• Record commitments: The value of previous home loan commitments that haven’t been advanced or utilised stood at a record $25.2 billion in October, up 13.6 per cent over the year.
• Business conditions at 15-month high: The NAB business confidence index eased from +6.1 to +5.3 in November. The business conditions index improved from minus 3.6 points to a 15-month high of minus 2.7 points. The survey was conducted from November 25 to 29.

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Pre-Election Economic & Fiscal Outlook; NAB business survey

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  Pre-election economic outlook results almost identical.

  No change: It was almost certain that the Pre-Election Economic & Fiscal Outlook (PEFO) figures were going to be the same as those in the Economic Statement, a document released on August 2 just before the election was called on August 4. There were no surprises. The figures were almost identical.

• Soft business survey: The NAB business confidence index weakened from minus 0.4 points to minus 2.8 points in July. The business conditions index improved from minus 7.5 points to minus 6.6 points. The survey was conducted from July 25-31, that is, before the Economic Statement was released, before the Federal Election was called and before the Reserve Bank cut interest rates to 53-year lows.
• Inflationary pressures emerging: The NAB business survey showed purchase costs lifting at a 1.2 per cent quarterly pace in July, up from 0.4 per cent. Wage costs rose at a 1.3 per cent quarterly pace, up from 0.7 per cent.

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Business confidence subdued

The NAB business confidence index weakened from +3.1 points to +0.7 points in February and the business conditions index weakened from minus 1.8 points to minus 2.7 points. The survey was conducted from February 25 to March 5.

What does it all mean?
The surprisingly soft business survey isn’t of immediate concern. Consumers are spending a little more but businesses aren’t yet seeing a huge impact in their operations.

The improvement in the employment index is encouraging but orders, profitability and trading conditions are still subdued. The other encouraging aspect was a lift in the proportion of businesses seeking finance, although follow-on improvement is required in coming months.

What do the figures show?
National Australia Bank Business Survey:

• The NAB business confidence index weakened from a six-month high of +3.1 points to +0.7 points in February and the business conditions index weakened from a five-month high of minus 1.8 points to minus 2.7 points.
• The index of trading conditions improved from +0.3 points to +0.4 points; employment improved from minus 6.0 points to minus 3.1 points; profitability weakened from minus 1.7 points to minus 5.4 points; and forward orders weakened from minus 4.3 points to minus 10.8 points and marked the 23rd straight month that forward orders have contracted.
• In terms of business conditions, NAB noted: “Movements in business conditions were fairly mixed across industries in February. Solid improvements were reported in mining, recreation & personal services (both up 7 points) and retail (up 6), while conditions moderated modestly in construction (down 6 points) and transport & utilities (down 4). This survey highlights an apparent improvement in the main consumer dependant sectors of the economy – retail and recreation & personal services – which appear to be gaining strength on the back of the recent surge in equity prices and an improving housing market: i.e. through wealth effects. The improvement in mining conditions may in part reflect the relatively high price of iron ore over the past month or so, which should be particularly supportive for mines in WA, although cyclone Rusty, which shut down major terminals at Port Hedland towards the end of February, is likely to have kept activity levels contained. Overall, conditions were most subdued in construction (-14) and manufacturing (-12), while they were strongest in recreation & personal services (+8) and finance/ business/ property (+4).”
• Inflationary pressures are still restrained. The monthly reading of labour costs rose at a 0.8 per cent quarterly rate in February after a 0.3 per cent rise in January but the result remains historically low. Prices rose 0.1 per cent after being flat the previous two months. Retail prices were flat in February after falling at a 0.2 per cent quarterly rate in January. Purchase costs rose at a 0.6 per cent quarterly rate in February, up from 0.2 per cent in January that had been the lowest reading since September 2010.
• Capacity utilisation lifted from 79.3 per cent in January to a four-month high of 79.8 per cent in February, but below the long-term average of 81.2 per cent.
• The proportion of firms reporting that they did not require credit improved from 71 per cent in January to 50 per cent in February.

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.

What are the implications for interest rates and investors?
The latest business survey provides nothing ‘fresh’ for the Reserve Bank. That is, there is nothing to prompt changes in interest rates in any direction. If rates are to move in the next few months clearly it would be down, not up. But the Reserve Bank will want to give the economy more time to respond to previous rate cuts.

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• In the March quarter, retail prices fell by 0.9 per cent – the biggest price fall in almost 30 years of records. Prices are unchanged on a year ago, the lowest result in seven years.
• The NAB business confidence index rose from +2.6 in March to +3.7 in April, but this was still below the long-run average of +6.3. However, business conditions fell from +3.4 in March to a six-month low of -0.1 in April. The survey of 400 businesses took place from April 23-30 – before the May 1 super-sized rate cut.
• Bad news for job seekers: The number of job advertisements fell for the first time in four months, dropping 3.1 per cent in April.

What does it all mean?

• Australia’s retailers have finally something to celebrate. Not only did spending lift in March by the biggest margin in almost a year, once you adjust for inflation, the gain over the March quarter was the best in almost three years. No one will be getting carried away with one month’s sales result. But it shows there is life out there in consumer land.
• Why did we start to spend again? It seems like lower prices had a lot to do with it. There has never been a bigger fall in retail prices in 30 years. A stronger Australian dollar, cheaper food, on-going innovation in technology goods, strong global competition and good old fashioned discounting have prompted Aussies to part with their cash again.
• The big winners have been specialised food stores, cafes and restaurants with consumers seemingly giving up on renovating and decking out their homes and focussing on food instead. The lift in sales at butchers, bakers, fruit & veg shops and seafood stores over the March quarter was the best in five years. And the increase in cafes & restaurant trade was the best in 18 months. Cheaper prices had a lot to do with it – even prices at cafes & restaurants fell 1.0 per cent in the March quarter – a record fall.
• The biggest casualty was in household goods like carpets, furniture, hardware and garden supplies where spending slumped 3.3 per cent in inflation-adjusted terms over the March quarter
• The clear conclusion from the raft of economic data out today is that the Reserve Bank can cut rates again. However the RBA is likely to take a few more months to weigh up all the influences. CommSec is pencilling in a rate cut in August after the next inflation data.

What do the figures show?
Retail trade

• Retail trade rose by 0.9 per cent in March – the biggest increase in 11 months. Sales had previously risen by 0.3 per cent in February and 0.4 per cent in January. Annual spending growth lifted from 2.1 per cent to 3.7 per cent.
• Non-food retailing rose 1.0 per cent in March after a scant 0.1 per cent rise in February. Sales by chain-store retailers and other large retailers rose by 1.6 per cent in March – the best gain for over two years (November 2009).
• Sales rose across all states and territories, led by ACT, up 1.5 per cent, with Victoria up 1.3 per cent and NSW and Western Australia up 1.2 per cent.
• In real (inflation-adjusted) terms, retail spending rose 1.8 per cent in the March quarter – the biggest rise in almost three years (since June quarter 2009). Annual growth lifted from 1.4 per cent to 2.9 per cent – still below the decade average of 3.7 per cent.
• The biggest gain in the quarter was by “specialised food retailing” (butchers, bakers, fruit, seafood stores), up 8.0 per cent. Next best was cafes & restaurants, up 5.9 per cent.
• Department stores posted the best real growth in five years (up 2.6 per cent) in the March quarter in response to 0.8 per cent fall in prices (biggest drop in over a decade).
• Biggest drop in real spending was by Furniture, Floorcovering and Textile Goods Retailing, down 3.3 per cent, and Hardware, Building & Garden Supplies Retailing, also down 3.3 per cent.
• Only four of the 15 detailed retail classifications recorded price increases in the March quarter. Six of the 15 retail sectors are recording annual price deflation (falling prices).

Job advertisements

• The combined number of internet and newspaper job advertisements, as tracked by ANZ, fell for the first time in four months, dropping by 3.1 per cent in April after gains of 0.7 per cent in March, 3.3 per cent in February and 7.4 per cent in January. Job ads are down 1.7 per cent on a year ago.
• Newspaper job ads rose for the second straight month, up by 0.1 per cent in April, while the far larger component of internet job ads fell by 3.2 per cent.
• ANZ provides data on newspaper job ads by state but given their minor importance in relation to internet ads and poor record in tracking total advertisements, the data is not useful for analytical purposes.

National Australia Bank Business Survey

• The National Australia Bank business confidence index rose from +2.6 in March to +3.7 in April. But the business conditions index fell from +3.6 to a six-month low of -0.1. Both readings are below long-term averages.
• The index of trading conditions slumped from +7.5 to +2.0; profitability fell from +2.7 to -4.1; employment rose from +0.5 to +2.2; and forward orders fell from -1.0 to -1.5. It was the 13th straight month that forward orders have contracted.
• Inflationary pressures remain well contained. The monthly reading of labour costs “picked up to a modest 1.1 per cent (quarterly rate) in April. The survey suggests that wage costs pressures are reasonably well contained and are unlikely to be too concerning for policy makers.” Prices rose at a 0.1 per cent quarterly pace, a similar result to March. Retail prices fell at a 0.7 per cent quarterly rate in April. But bucking the trend, purchase costs rose at a 0.7 per cent quarterly rate in April, up from the 0.4 per cent growth in March.
• Capacity utilisation slumped from 81.0 per cent to a 34-month low of 79.4 in April. The long-term average stands at 81.2 per cent. In April, 69 per cent of firms report that they did not require credit – a record high.

What is the importance of the economic data?

• The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
• The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
• 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.

What are the implications for interest rates and investors?

• Inflation has been replaced by deflation, setting up the prospect of another cut in interest rates. Prices won’t continue to fall, and in their absence the Reserve Bank can step in and maintain spending momentum by cutting prices.
• Department stores had a good quarter, but it appears that the biggest drop in prices in a decade had a lot to do with the lift in sales. All businesses will be fixated on reducing costs in the current environment because lifting prices is out of the question.
• The business survey was undertaken before the Reserve Bank delivered the super-sized rate cut in early May. But it is clear from the survey that inflationary pressures are well contained, entrenching the view that interest rates can be cut again.
• The drop in job ads isn’t a great concern as yet as it’s just the first fall in four months. But it’s clear that businesses remain cautious about hiring, investing and spending in the current environment.

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