• 

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

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

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

What does it all mean?

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

 What does the data show?

Chinese economic data

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

Previously released Chinese data

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

What is the importance of the economic data?

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

What are the implications for interest rates and investors?

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

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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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What does it all mean?

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• Council approvals to build news homes fell by 7.4 per cent in February after sliding by a revised 11.6 per cent in the prior month. In annual terms approvals are down 21.8 per cent on a year ago.
• The floods continue to play a part in the weak result, but even excluding Queensland new dwelling approvals fell by a considerable 6.6 per cent in February.
• Retail spending grew by 0.5 per cent in February – in line with the Commonwealth Bank Business Sales Indicator which was released two weeks ago. Over the past year retail trade lifted by just 3.6 per cent.
• Across the states Queensland retailers outperformed their peers with sales up 2.3 per cent in February.
• Private sector credit rose by 0.5 per cent in February to stand 3.4 per cent higher than a year ago. Housing credit grew by 7 per cent in annual terms marking the weakest annual growth rate in records going back 34 years.

What does it all mean?

• The weakness in housing activity is here to stay – at least for the near term. After sliding by almost 12 per cent in January, approvals have slumped by a further 7 per cent in February. In fact in annualised terms approvals are now down over 24 per cent on a year ago. Whichever way you cut it the weakness in housing activity is plain to see.
• There is no doubt that the wet weather and in particular the floods in Queensland have had a serious detrimental impact to activity levels. Especially given that Queensland approvals have fallen by over 20 per cent in the past two months, but even when Queensland is excluded, approvals fell by a sizeable 6.6 per cent in February.
• The building approvals series tends to be volatile especially given that apartment approvals, tend to be lumpy. And it is important to note that the figures are likely to be revised in coming months, given the flooding. Despite the possibility of revisions to the data, it is clear that there is an underlying level of weakness in housing activity. Not only is overall building approvals plummeting but the all important private sector new house segment remains weak, with a 17 per cent slide in the annual growth rate.

• The retail sector has certainly done it tough over the past year. Annualised growth in sales is still subdued at just 3.6 per cent – a far cry from the decade average growth of 6 per cent. The tightening of monetary policy and unwinding of stimulus has been the key reason for the turnaround in the fortunes of the retail sector. The domestic economy is not shooting the lights out and retail activity is sluggish.
• The larger department and chain stores have fared better, given the ability to discount to a greater degree. In annual terms sales are up 4.5 per cent at the larger retailers while smaller retailers recorded growth of just 2 per cent. On a positive note Queensland retailers outperformed their peers in the month of February with sales up 2.3 per cent. It may be an early sign of the rebuilding that should gain traction in coming months.
• Part of the sustained weakness in the retail sales data can be blamed on lower prices, rather than weaker spending, given the widespread discounting taking place across the retail sector. However weaker volumes are clearly playing their part. Prices of some goods are coming down because our dollar is strong, but plenty of
  retailers are cutting prices because consumers refuse to spend.
• The Australian economy has certainly lost momentum over the last couple of months. Not only are house prices going backwards, but retail spending is barely growing. And even the latest improvement in private sector credit comes after considerable period of weakness. The pickup in business credit is encourage but follows seven months of going backwards. Further improvements would be needed in coming months to claim a full blown turnaround.

What do the figures show?

Retail trade:

• Retail trade rose by 0.5 per cent in February after a 0.4 per cent rise in January. Non-food retailing rose by 0.9 per cent in February after fall by 1.1 per cent rise in the prior month. Over the past year retail trade lifted by just 3.6 per cent.
• Sales by chain stores and other large retailers rose by 0.5 per cent in seasonally terms in February while sales by smaller retailers rose by 0.6 per cent. In annual terms sales at chain stores were up 4.5 per cent on a year. Sales at smaller retailers were up just 2.0 per cent on a year ago.
• During February, sales increased most at other Furniture, floor coverings, houseware and textile goods retailing (up 4.3 per cent). Other retailing groups like newsagencies, stationary shops and florists recorded healthy gains up 3.1 per cent in the month. Sales fell most at other recreational good retailers – including sporting, entertainment and toy retailers – (down 2.2 per cent), followed by footwear retailers (down 1.1 per cent).
• Across the states sales lifted most in Queensland (up 2.3 per cent), followed by Northern Territory (up 1.7 per cent), Western Australia (1.6 per cent), and Tasmania (up 1.3 per cent). Sales fell in the ACT (down 1.6 per cent), South Australia (down 0.5 per cent and Victoria (down 0.3 per cent).

Building Approvals:

• New dwelling approvals fell by 7.4 per cent in February, after sliding by a downwardly revised 11.6 per cent in January. Dwelling approvals are down 21.8 per cent on levels of a year ago.
• Excluding Queensland new dwelling approvals fell by 6.6 per cent in February.
• House approvals rose by 0.5 per cent in February (private sector up 0.2 per cent), after sliding by 2.8 per cent in January. Apartment approvals fell by 20.5 per cent in February (private sector was down 20.0 per cent) after sliding by 23.3 per cent in January. In annual terms apartment approvals are down 26.1 per cent on a year ago, while house approvals are down 19.5 per cent.

• Dwelling approvals fell in three of the six states in January, with Victoria (down 23.1 per cent) faring worst followed by Queensland (down 11.8 per cent). Approvals rose the most in Tasmania (up 44.4 per cent) and South Australia (up 35.9 per cent).
• In annual terms approvals across the state: NSW (down 10.4 per cent), Victoria (down 17.6 per cent), Queensland (down 38.7 per cent), South Australia (down 2.4 per cent), Western Australia (down 38.6 per cent), and Tasmania (up 1.2 per cent).
• The value of building approvals rose by 13.7 per cent in February and was lower by 9.5 per cent on a year ago.

Private sector credit

• Private sector credit (lending) rose by 0.5 per cent in February after rising by 0.3 per cent in January. Credit growth is up 3.4 per cent on a year ago.
• Housing credit grew by 0.5 per cent with lending to owner-occupiers rising by 0.6 per cent and investor housing up 0.4 per cent. Housing credit is up 7.0 per cent on a year ago – the weakest annual growth in 20 months. Owner occupier housing credit is up 6.8 per cent on a year ago – slowest pace in records going back 20 years. Investor housing lending was up 7.5 per cent on a year ago.
• Personal credit remained rose by 0.2 per cent in February after rising by 0.1 per cent in January. Personal credit was up 0.7 per cent over the year – still well below the rate of inflation. Business credit rose by 0.6 per cent after sliding for seven straight months. Business credit is down 1.7 per cent on a year ago and has been consistently contracting for the past 20 months.

What is the importance of the economic data?

• The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.
• The 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.
• Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

What are the implications for interest rates and investors?

• The domestic economy is certainly facing headwinds, with the higher Australian dollar curbing tourism and making exports less competitive. At the same time the conservative attitudes of consumers have ensured that retail activity remains relatively weak, while activity in the housing sector remains sluggish.
• More and more it is looking like the Reserve Bank will stay on hold on the interest rate front over the next couple of months. There is nothing in the data to force the Reserve Bank to once again look at rate hikes in the near term.

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• Our last update on the La Niña weather event was published on February 14. At that time the Southern Oscillation index hit an 11-week low of +16.6 on February 11, but it promptly rebounded. The SOI now stands at +22.2. Any reading above +8 indicates that a La Niña weather event is in force.
• The current La Niña event is the most significant since 1917 and is having widespread effects on the economy and the broader community. La Niña events are associated with wetter conditions across eastern and northern Australia as well as increased prevalence of cyclones.
• The Bureau of Meteorology releases its next climate update on March 30.

What does it all mean?

• La Niña is still very much in force. Clearly that has been in evidence in Sydney over the weekend with the highest 24-hour rainfall in 3½ years. But Central Queensland has also been subjected to significant rainfall over the past two weeks.
• A raft of businesses – especially retailers relying on seasonal purchases – can’t afford not to constantly keep a watch on the progression of the current La Niña weather event. Unfortunately while increased frequency of rain days may appear positive during autumn, daytime and night time temperatures remain mild, thus crimping demand for seasonal purchases.

What do the figures show?

• The Bureau of Meteorology (BOM) tracks the Southern Oscillation Index (SOI) as a means of defining El Niño or La Niña. The SOI measures differences in air pressures between Tahiti and Darwin. Consistent readings of the SOI above +8 indicate a La Niña event – associated with cooler, wetter weather in eastern and northern Australia and an increase in tropical cyclones in northern Australia. The current La Niña event is the strongest since 1917/18. The current La Niña climate event began in July 2010.
• The 30-day average of the Southern Oscillation index fell to an 11-week low of +16.6 on February 14. But just as in late January, the weakening of the SOI proved temporary, and the gauge promptly rebounded.

• The SOI currently stands at +22.2, well above the La Niña threshold of +8. While the SOI has fallen for four days, it has eased from a reading of 26.4 – the highest since January 19 (+26.9) and not far off the high for the current event of +27.9 on December 29.
• In its last update, BOM said: “The La Niña event in the Pacific Ocean has continued to weaken over the past two weeks as Pacific Ocean temperatures along the equator have warmed. All available climate models suggest further weakening of the La Niña is likely through the southern hemisphere autumn, with a return to neutral conditions likely by winter 2011.”
• The US Climate Prediction Centre also says that models predict a return to more neutral conditions (neither La Niña nor El Niño) around May-July 2011. But it notes: “La Niña will continue to have global impacts even as the episode weakens through the Northern Hemisphere Spring” and highlights the risk of below-average rainfall in Southern US states and below-average temperatures on the US West Coast.

El Niño, La Niña – what is it all about?

• Over time, Australians have heard a lot about El Niño (“boy child). This is the weather event that most people associate with drought. And given that most of the noughties were characterised by drought, there has been plenty of discussion about El Niño in recent years.
• But now the discussion centres on La Niña (“little girl”). This is essentially the opposite of El Niño, referring to the large-scale cooling of ocean temperatures in the Equatorial Pacific and associated with cooler, wetter weather in eastern and northern Australia. The Bureau of Meteorology (BOM) also notes that there tends to be more tropical cyclones in northern Australia when La Niña events occur.
• In late September, BOM indicated that La Niña was well established in the Pacific and indicated that it would last until at least early 2011. The Climate Prediction Centre in the US projected that La Niña would persist until at least the Northern Hemisphere Spring of 2011 – that is to around March 2011. Both have pushed out forecasts until mid 2011.
• The CPC says that the last El Niño event extended from May 2009 to May 2010. Effectively there have been rolling El Niño events from April 2002 through to 2010, with only a brief La Niña from August 2007 to Jun 2008. The last major La Niña was a two-year period from June 1998 to June 2000.
• In contrast to the dry noughties, the 1990s tended to be wetter than normal with a La Niña event occurring from 1995 to 1996 and then another event covering 1998 to 2000.

Implications of a La Niña weather event

• A raft of businesses and industries has been affected by the major La Niña event. Amongst sectors that have been most affected are:
  • Retailers of seasonal goods – clothing, electrical goods, outdoor equipment, swimming pool operators & equipment
  • Utilities – reduced demand for power (air-conditioners, fans etc)
  • Insurance companies – floods, cyclones, more traffic accidents
  • Rural producers – effects have varied depending on the severity and timing of rainfalls. And while some regions have been negatively affected, other regions will benefit from increased sub-soil moisture in the medium-term.
  • Builders/construction – weather delays with more frequent rain days

What are the implications for investors?

• La Niña is clearly a watching brief for investors, consumers and businesses. While there is consensus that the weather event is weakening and will end by midyear, current readings remain high. Construction, mining and insurance companies remain most at risk.

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• Credit card balances are growing at the slowest annual pace in 16 months. The average credit card balance in January was up just 0.8 per cent on a year ago. The average balance fell by $100.90 to $3,214.00.
• Consumers are preferring to use their own money to purchase goods. Purchases made on debit cards rose by 25.8 per cent on a year ago – the fastest growth on record.
• Petrol prices are likely to track higher in coming weeks. The national average wholesale (terminal gate) stands at a near 29-month high of 134.8 cents a litre today, up a further 2.2 cents a litre over the past week.

What does it all mean?

• Consumers continue to remain ultra conservative. The average credit card balance is barely growing at present with consumers much preferring to live within their own means. The average balance is up just 0.8 per cent on a year ago, the slowest annual pace in 16 months. And once inflation is taken into account, the average credit card balance is actually going backwards.
• Aussie consumers are increasingly using their own money (debit cards) to make purchases rather than put them on credit. Purchases made on using debit cards are up almost 26 per cent on a year ago – the fastest pace recorded.
• The news for retailers isn’t good. The price of petrol is going up, acting like a de facto rate hike. At the same time, consumers continue to shun discretionary spending, added to which the recent losses on equity markets will be a further dampener on spending – both in terms of confidence and actual income levels.
• It is a public holiday in Canberra today and the usual data on retail petrol prices will be released tomorrow. However the sustained increase in the terminal gate (wholesale) price suggests that pump prices will continue to rise in the coming fortnight. In fact since bottoming out just over a month ago the terminal gate price has surged by almost 9 cents a litre.
• CommSec expects pump prices to increase by a further 3 cents a litre in the next fortnight, taking the national average price to around $1.45 a litre. Already signboards around Australia are showing prices above $1.50 a litremeaning that motorists are more likely to actively lookout for the discount days to purchase fuel.

What do the figures show?

Credit & debit card activity:

• Figures released from the Reserve Bank show that the average credit card balance, fell by $100.90 to $3,214.0 in January. The average credit card balance is only up 0.8 per cent on a year earlier – the slowest annual growth in 16 months.
• Of credit cards attracting interest charges, the average outstanding balance rose by $18.40 to $2,408.50. The average balance accruing interest is up 3.1 per cent on a year ago (slowest growth in 11 months).
• The number of credit card cash advances fell by 3.1 per cent in January. Credit card advances are now down 1.6 per cent on a year ago. Cash advances have been largely falling in annual terms for four years.
• The average credit card limit grew at a 1.7 per cent annual pace, below the rate of inflation and the slowest growth rate in records going back 16 years.
• The number of purchases made on credit cards grew by 8.7 per cent in January compared with a year ago.
• Total debit card transactions rose by 25.8 per cent on a year ago – marking the highest reading on record.

Petrol prices:

• Today, the national average wholesale (terminal gate) stands at a near 29-month high of 134.8 cents a litre, up 2.2 cents a litre over the past week.
• Last week, the key Singapore unleaded petrol price fell by US$2.78 (2.3 per cent) to US$120.82 a barrel. And in Australian dollar terms the Singapore gasoline price fell by $1.42 (1.2 per cent) over the week to $120.46 a barrel.

What is the importance of the economic data?

• 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.
• 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?

• The lift in the price of petrol is further bad news for motorists, taking precious spending dollars out of consumer pockets. Retailers already have to contend with the effects of the weather on seasonal spending, consumer conservatism and higher utility prices.

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• Petrol prices continue to tracking sideways. According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 0.3 cents a litre to 135.1 cents a litre in the
  week to February 20. The wholesale (terminal gate price) stands at a 28-month high of 127.1 cents a litre today. Remarkably though, motorists are paying similar prices for petrol as back in mid 2006.
• Regional gasoline price at 28-month highs. In Australian dollar terms, the Singapore gasoline price hit a fresh 28-month high of US$108.73 a barrel on Friday. When the gasoline price was last near the levels existing today, the Aussie dollar was near US83c and the domestic petrol price was around 150 cents per litre. In other words we can thank a higher Australian dollar for insulating us from higher world oil prices.
• Watch the Middle East. If there is one factor likely to send global oil prices higher it is the spreading instability through the Middle East and North Africa.
• Caltex reports profit. In 2010 Caltex reported a 1 per cent lift in profit to $318 million. The Caltex Refiner Margin averaged US$8.39 per barrel or 5.77 Australian cents per litre during 2010, compared with an average of US$5.95 per barrel or 5.05 Australian cents per litre during 2009.

What does it all mean?

• Since late January, the wholesale petrol price has been holding near 28-month highs, hovering between $1.26 and $1.27 a litre. And not surprisingly the pump price has been hovering near $1.35 a litre. That relationship looks set to hold for now with regional gasoline prices little changed over the past week.
• Some motorists may feel that we are being hard done by at the petrol pump. But the simple fact is that when regional oil prices were similarly around current levels in September 2008, the Aussie dollar was around US17 cents lower and our petrol price was around US17 cents a litre higher. In short in makes sense that we are paying around $1.30-$1.35 at the petrol bowser. The gap between the wholesale and retail price has lifted over time, but only modestly, up from 5-6 cents a litre to 7-8 cents a litre.
• The perception is that the Aussie dollar was much lower back in 2008 but that isn’t the case, in fact it was near US98c in July 2008 before the global financial crisis dragged it lower. And the interesting point about the current petrol price is that over 4½ years ago motorists were paying similar prices for petrol. We may wish prices were lower, but few can complain too loudly about current petrol prices.
• The main worry for motorists is the spreading turmoil in the Middle East. If the instability continues, investors will get increasingly worried that oil supplies may be disrupted, sending global oil prices high. Fortunately for motorists our lofty currency in keeping petrol price pain to a minimum.

What do the figures show?

Petrol prices:

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 0.3 cents a litre to 135.1 cents a litre in the week to February 20 (range from 132.9c to 137.5c). The metropolitan price rose by 0.4 c/l to 135.1 c/l, while the regional average price rose by 0.3 c/l to 135.3 c/l.
• Average petrol prices across states over the past week were: Sydney (up 1.0 cents to 134.5 c/l), Melbourne (unchanged at 134.3 c/l), Brisbane (down 1.1 cents to 137.6 c/l), Adelaide (up 0.9 cents to 133.6 c/l), Perth (up 0.9 cents to 135.4 c/l), Darwin (down 0.4 cents to 137.7 c/l), Canberra (up 0.3 cents to 135.4 c/l) and Hobart (unchanged at 140.7 c/l).
• Today, the national average wholesale (terminal gate) stands at a 28-month high of 127.1 cents a litre, up 0.8 cents a litre over the past week. The wholesale price has been hovering around 126-127 cents a litre since late January 2011.
• Last week, the key Singapore unleaded petrol price rose by US$1.86 (1.7 per cent) to US$110.10 a barrel. And in Australian dollar terms the Singapore gasoline price rose by 35c (0.3 per cent) over the week to $108.73 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?

• Petrol is not a major influence at present on consumer psychology or household budgets. While the petrol price can lift as high as $1.45 a litre during the week in major capital cities, it also gets down to $1.25-1.30, so it is not causing heartache at present. Still the concern in the back of many minds is that the petrol price may continue to creep higher and that risk is preventing consumers from opening their wallets a little wider.
• The stability of the petrol price neither represents good news or bad news for retailers. For many motorists it remains a watching brief.
• Filling up the car with petrol is the single biggest purchase that most people make each week. While a 1-2 cent per litre lift in pump prices only adds up to an extra $1-2, the fact is that motorists watch every penny when around $80 of petrol is being put in the tank.
• Caltex reported 2010 earnings today with net profit up 1 per cent to $318 million. The Caltex Refiner Margin averaged US$8.39 per barrel or 5.77 Australian cents per litre during 2010, compared with an average of US$5.95 per barrel or 5.05 Australian cents per litre during 2009. Shareholders have done well with total dividends of 60c a share in 2010, up from 25c a share in 2009.

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• The Commonwealth Bank Business Sales Indicator (BSI) eased yet again in trend terms in January, but it certainly wasn’t all bad news. In fact only a small minority of business sectors are now posting weaker sales. In January only three of the 20 industry sectors recording weaker sales in the month, down from four sectors in December and nine sectors in November.
• In seasonally adjusted terms the BSI rose for the second straight month, lifting 0.5 per cent.
• Across the sectors, Retail stores recorded the largest gain with a 1.3 per cent increase in trend terms – marking the biggest monthly increase in 17 months.
• 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?

• The Commonwealth Bank Business Sales Indicator (BSI) fell by 0.2 per cent in trend terms in January after similar declines in November and December. At face value that suggests continued tough times for retailers, but further examination reveals a more promising picture.
• In fact the majority of industry sectors continue to record spending growth. In January only three of the 20 industry sectors recording weaker sales in the month, down from four sectors in December and nine sectors in November.
• While ordinarily the trend measure is preferred for data analysis as it is less volatile and shows broader trends, seasonally adjusted estimates can highlight key turning points in the data. And another source of encouragement is that we have seen overall growth in sales in seasonally adjusted terms.
• In seasonally adjusted terms the BSI rose for the second straight month, lifting 0.5 per cent. And the biggest industry category – retail stores recorded the largest gain across sectors –marking the biggest increase in 17 months.
• The latest figures do appear to show that we are on the road to recovery, however with high fuel prices and the prospect of a rise in both interest rates and the price of food, consumers will remain fairly guarded.
• 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.

What do the figures show?

• The Commonwealth Bank Business Sales Indicator (BSI) fell by 0.2 per cent in trend terms in January after similar declines in November and December. This was the 13th straight monthly decline for the trend measure of economy-wide spending.
• In January the BSI rose by 0.5 per cent in seasonally adjusted terms after a similar gain in December. There have only been three positive readings in the past 11 months so the recent gains are encouraging for retailers.
• Another source of encouragement is the fact that the majority of industry sectors recorded spending growth in trend terms. In trend terms, the value of spending transactions fell in only three of the 20 industries in January, down from eight sectors in November.
• The biggest industry category – Retail stores – recorded the largest gain across sectors. The 1.3 per cent increase in trend sales in January was the fourth straight gain and biggest increase in 17 months. Next strongest was Contracted services (up 1.2 per cent) followed by Repair services and Service providers (both up 1.1 per cent).
• The Contracted services category includes a range of building trades like electrical services, carpenters and landscape services. Service providers include financial and insurance services.
• The Amusement & entertainment sector recorded growth of 0.5 per cent in January, the best reading in 15 months. The sector includes motion picture theatres, bowling alleys, golf courses and video stores.
• Other sectors to record encouraging gains were Automobile/vehicle rentals (up 0.5 per cent – the best gain in 19 months), Clothing stores (up 0.2 per cent – the best gain in 20 months) and Mail order/telephone order providers (up 0.6 per cent – best gain in 25 months).
• The weakest sectors in January in trend terms were Miscellaneous stores (down 1.2 per cent), Hotels and motels (down 0.4 per cent) Government services (down 0.1 per cent).
• In annual terms, eight of the 20 industry sectors contracted in January. The weakest sectors were Automobile & vehicles and Mail Order and Telephone Order Providers (both down 12.5 per cent) followed by Miscellaneous stores (down 11.9 per cent) and Retail stores (down 3.3 per cent).
• At the other end of the scale, Professional services & membership organisations recorded annual trend growth of 7.7 per cent followed by Contracted services (up 6.2 per cent) and Personal service providers (up 5.3 per cent). Personal service providers include laundries, hairdressers, shoe repair and tax agents.
• Only two of the eight states and territories recorded lower trend sales in January, down from four states in December. Sales were down by 0.1 per cent in both Queensland and Victoria. There was no noticeable impact of either the floods or Cyclone Yasi in the BSI state results. Spending rose most in NSW (up 0.6 per cent), followed by Tasmania (up 0.5 per cent) and Western Australia (up 0.3 per cent)
• In annual terms, the only two states/territories to record growth in January was NSW (up 1.1 per cent) followed by Western Australia (up 0.9 per cent). At the other end of the scale, the spending gauge was weakest in Victoria (down 9.1 per cent) followed by South Australia (down 8.6 per cent) and Queensland (down 5.9 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. 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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• The Westpac/Melbourne Institute index of consumer confidence rose modestly in February following the sharp slide in January. The index rose by 1.9 per cent to 106.6 in February.
• In trend terms confidence levels have been falling for the past five months and are holding at the lowest levels in 20 months.

What does it all mean?

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

What do the figures show?

Consumer sentiment

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

What is the importance of the economic data?

• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.

What are the implications for interest rates and investors?

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

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• There are further signs that the current La Niña weather event has peaked. The Southern Oscillation index fell to a 10-week low of +18.1 on February 11. The current La Niña event is the most significant since 1917 and is having widespread effects on the economy and the broader community.
• The Bureau of Meteorology releases its next climate update on Wednesday.

What does it all mean?

• La Niña is still in force, but a raft of businesses will be urgently hoping that recent signs of easing conditions continue. The La Niña gauge – the Southern Oscillation Index – has fallen to a 10-week low but the reading of +18.1 is still above the generally assumed La Niña threshold of +8.

What do the figures show?

• The Bureau of Meteorology (BOM) tracks the Southern Oscillation Index (SOI) as a means of defining El Niño or La Niña. The SOI measures differences in air pressures between Tahiti and Darwin. Consistent readings of the SOI above +8 indicate a La Niña event – associated with cooler, wetter weather in eastern and northern Australia and an increase in tropical cyclones in northern Australia. The current La Niña event is the strongest since 1917/18. The current La Niña climate event began in July 2010.
• The 30-day average of the Southern Oscillation index fell to a 10-week low of 18.1 on February 11. The index had fallen for nine straight days to an 8-week low of +19.3 in late January before again moving higher. The latest downturn of the SOI has extended for six days.
• In its last update, BOM said its indicators “continue to indicate a strong, mature La Niña, although there are clear signs the event has passed its peak.” The next update from BOM is on Wednesday.
• The US Climate Prediction Centre also monitors upperocean temperature anomalies in the Pacific to track La Niña events. It notes that the negative anomalies associated with La Niña have weakened since early January and are back to levels in mid May 2010.

What are the implications for investors?

• La Niña is clearly a watching brief for investors. But while recent trends of tempering conditions are encouraging, there is still some way to go before it can be declared that La Niña is ending.
• More generally, however, recent milder, wetter weather over eastern and southern states has represented good news for department stores and other clothing retailers that are currently stocking shelves with autumn gear.

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