Western Australia clings to top spot from Northern Territory & NSW.

• Western Australia remains Australia’s best performing economy, while the Northern Territory has consolidated its position ahead of the big improver in the latest quarter – NSW.
• Western Australia continues to lead the way on retail trade and is strongest on housing finance. It is second strongest on economic growth, construction work done and population growth and finished third on business investment and dwelling starts. Western Australia is weakest on unemployment (seventh).
• The Northern Territory remains the second strongest economy, and only just behind Western Australia. The main strengths are economic growth, business investment, unemployment and construction work. The Northern Territory is now second strongest on retail trade. But it also is in last place on housing finance.
  • New South Wales has lifted from equal fifth spot to third, courtesy of improvements in economic growth, business investment, population growth and dwelling starts – on the latter two indicators it leads other states and territories.
  • Queensland is now the fourth strongest economy, but largely because the ACT has slipped down the leader-board rather Queensland improving its position on some of the key indicators. Queensland is second strongest on business investment but seventh on population growth.
  • Victoria remains the fifth strongest economy with little change in its relative position against other states and territories on any of the key indicators. Victoria is second strongest on housing finance and third strongest on population growth.
  • The ACT economy has slipped from the equal third-best performing economy to sixth. While the Territory is second strongest on dwelling starts and unemployment, it is the weakest on business investment and construction work and its relative position on population growth and construction work have weakened markedly.
  • There remains a sizeable gap in the rankings to South Australia and then another gap to Tasmania. South Australia generally is sixth or seventh on most of the key indicators although it is middle-ranked on construction work, assisted by a number of public sector projects.
  • Tasmania remains locked at the bottom of the Australian economic performance table. Tasmania lags other economies on five of the eight the indicators although it has improved its relative position on unemployment and business investment.

 

 

How was performance judged?

• Each of the states and territory economies were assessed on eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.
• The aim was to find how each economy was performing compared with “normal”. And just like the Reserve Bank does with interest rates, we used decade-averages to judge the “normal” state of affairs. For each economy, the latest level of the indicator – such as retail spending or economic growth – was compared with the decade average.
• While we also looked at the current pace of growth to look at economic momentum, it may yield perverse results to judge performance. For instance retail spending may be up sharply on a year ago but from depressed levels. Overall spending may still be well below “normal”. And clearly some states such as Queensland and Western Australia consistently have faster economic growth rates due to historically faster population growth. So the best way to assess economic performance is to look at each indicator in relation to what would be considered ‘normal’ for that state or territory.
• For instance, the trend jobless rate in the ACT of 3.4 per cent is lower than all economies. But this jobless rate is broadly in line with its ‘normal’ or decade-average rate of 3.4 per cent, whereas the jobless rate in Northern Territory is just over 12 per cent below its decade-average level.
• Trend measures of the economic indicators were used to assess performance rather than more volatile seasonally adjusted or original estimates.

Economic growth

• Ideally gross state product (GSP) would be used to assess broad economic growth. But the data isn’t available quarterly. Rather state final demand (household and business spending) is added to exports less imports to act as a proxy for GSP. Exclusion of the trade sector would provide an incorrect assessment of growth for economies such as Western Australia and Queensland.
• The Northern Territory continues to lead the rankings on economic activity. Activity in the ‘top end’ is almost 52 per cent above its ‘normal’ or decade-average level of output.
• Next strongest is Western Australia, with output around 30 per cent higher than the decade average level of output. Then follows Queensland (up 18.6 per cent) from the ACT (up 15.2 per cent).
• At the other end of the scale, economic activity in Tasmania in the December quarter was just 5.1 per cent above its decade average while South Australian activity was up 10.0 per cent on its “normal” or average output over the past decade.
• There would be no change in the rankings if “final demand” was used instead, providing added confidence about the results achieved.
• The Northern Territory also maintains the fastest annual economic growth rate in the nation, up by 11.5 per cent on a year ago, ahead of Queensland with 4.1 per cent and NSW (3.0 per cent).
• The weakest trend annual economic growth rate was recorded in Victoria (1.7 per cent) followed by Western Australia (1.8 per cent) and Tasmania and ACT (both up 2.0 per cent on a year ago).

Retail trade

• The measure used was real (inflation-adjusted) retail trade in trend terms with December quarter data the latest available.
• Western Australia retains top spot on the retail rankings with spending in the December quarter just over 20 per cent above decade average levels. Solid population growth, solid turnover of existing homes and higher wages underpins the relative strength in consumer spending.
• Northern Territory was next strongest, supported by lower-than-normal unemployment, with spending 18.0 per cent above decade-average levels.
• Queensland was next strongest, with spending 13.7 per cent above decade averages, followed by Victoria (up 11.3 per cent).
• Tasmania still maintains the weakest result on retail spending, up just 4.1 per cent on the decade average (but up from 2.6 per cent in the September quarter), and below South Australia with growth of 7.5 per cent.
• If monthly retail trade was assessed instead (February data available), there would be no change in the relative performance rankings, which is quite remarkable.
• In terms of the monthly retail trade series, encouragingly Tasmania is 9.2 per cent higher than a year ago, ahead of NSW with 7.7 per cent growth, Victoria with 6.8 per cent growth, Northern Territory with 5.8 per cent growth, South Australia, up 4.9 per cent. At the other end of the scale, ACT spending was up just 2.4 per cent on a year ago with Western Australian spending up 2.6 per cent, suggesting the two economies may slip further in next quarter’s economic performance rankings.

Equipment investment

• Northern Territory now leads other states and territories when it comes to equipment investment, moving up from third-strongest to the top spot. Spending in the December quarter was over 34 per cent above “normal” – or decade-average levels. Mining investment still remained relatively strong across the resource states. Equipment investment in Queensland is now 17.5 per cent above decade-average levels followed by Western Australia (up 16.1 per cent) and NSW (up 0.7 per cent).
• By contrast, new equipment spending in the ACT was 20.8 per cent below its longer-term average in the December quarter with Tasmania down 8 per cent.
• On a shorter-run analysis, equipment investment in the December quarter was lower than a year ago in all of the state and territory economies except Northern Territory (up 38.1 per cent). Equipment investment is down most on a year ago in the ACT (down 40.7 per cent), followed by Western Australia (down 29.3 per cent). By contrast new equipment investment in South Australia was down by just 1.5 per cent and down by 2.9 per cent in both Victoria and Tasmania.

Unemployment

• The Northern Territory and the ACT have arguably the strongest job markets in the nation. Northern Territory has the second lowest trend unemployment rate in the nation at 3.8 per cent, but this jobless rate is actually over 12 per cent below its “normal” or decade average level of 4.3 per cent.
• Similarly in the ACT, trend unemployment is the lowest in the nation at 3.4 per cent and this rate is just 0.3 per cent below its “normal” or decade average rate level.
• In other states, the latest unemployment rates are all above their decade-average levels. In NSW, unemployment stands at 5.5 per cent, up 5 per cent on its normal” or decade-average level of 5.2 per cent.
• At the other end of the scale, South Australia’s 6.9 per cent jobless rate is up almost 28 per cent on the decade average level of 5.4 per cent. Interestingly next weakest is Western Australia where its 5.3 per cent jobless rate is just over 27 per cent above the decade-average level. While Tasmania’s jobless rate stands at 7.4 per cent, this is just under 24 per cent above its decade-average level.

Construction work

• The measure used for analysis was the total amount of residential, commercial and engineering work actually completed in trend terms in the December quarter.
• In all states/territories except Tasmania construction work is higher than decade averages. And there remains a large gap between the strongest states (the resource states) and weakest states (Tasmania).
• In Tasmania, overall new construction work completed is 12.2 per cent below its decade average. By contrast construction work done in Northern Territory was over 112 per cent above its decade average followed by Western Australia (up 60.9 per cent) and Queensland (up 49.2 per cent).
• Next weakest to Tasmania is the ACT where construction work is 1.4 per cent above decade averages, followed by Victoria (up 9.9 per cent on the decade average).
• In terms of annual growth rates, Northern Territory construction work done in the December quarter was up 34.1 per cent on a year ago, followed by Queensland (up 8.3 per cent) and South Australia (up 5.9 per cent). But at the other end of the scale, ACT construction work was 18.2 per cent down on a year ago.

Population growth

• To assess population performance we looked at the current annual growth rate and compared it with each economy’s decade-average growth pace. And the good news is that population growth is above ‘normal’ in five states or territories although growth has lifted in only four jurisdictions over the past quarter.
• Western Australia is the clear leader in population growth with an annual growth rate of 3.10 per cent. But while NSW has a lower growth rate at 1.47 per cent, this is 31.2 per cent above the decade average. Western Australia’s population growth is 21.4 per cent above the decade average, and below that of NSW.
• Victoria is third strongest in annual population growth as well as the differential with the decade average rate. Victoria’s population is up 1.95 per cent higher than a year ago and this growth rate is 19.2 per cent higher than the “normal” or decade-average level.
• At the other end of the leader-board is Tasmania where the annual population growth of 0.24 per cent was 67 per cent below the decade average rate of 0.71 per cent but growth did lift in the September quarter from 0.21 per cent.

Housing finance

• The measure used was the trend number of housing finance commitments and this was compared with the decade-average for each respective state and territory.
• Housing finance is not just a lead indicator for real estate activity and housing construction but also is a useful indicator of activity in the financial sector. It would be useful to compare figures on commercial, personal and lease finance, but unfortunately trend data is not available for states and territories.
• In four of the states and territories – the Victoria, Western Australia, NSW and the ACT – trend housing finance commitments are above decade averages. Even more encouragingly commitments in February were above year-ago levels in all states and territories, except for the Northern Territory.
• Western Australia climbed into top spot for housing finance, with the number of commitments 10 per cent above the long-term average. Next strongest was Victoria, up 6.1 per cent on the decade-average.
• NSW remains in third spot on housing finance, up 5.6 per cent on the decade average followed by the ACT (up 1.9 per cent).
• Northern Territory remains the weakest economy for housing finance with trend commitments 21.6 per cent lower than its decade average. Next weakest was South Australia with trend commitments down 13.3 per cent on the decade average, but encouragingly commitments were up 8.1 per cent on a year ago.

Dwelling starts

• The measure used was the trend number of dwelling commencements (starts) with the comparison made to the decade-average level of starts. Starts are driven in part by population growth and housing finance and can affect retail trade, unemployment and overall economic growth. However any over-building or under-building in previous years can affect the current level of starts.
• The outlook for housing construction continues to strengthen, underpinned by low interest rates and strong demand by investors. Dwelling starts are above decade averages in six of the states and territories and starts in five states and territories are above levels of a year ago.
• NSW is now the strongest in the nation for new housing construction, with starts just over 39 per cent above decade averages. In addition in the December quarter the number of dwellings started was 18.1 per cent higher than a year earlier.
• In second spot was the ACT, with starts almost 29 per cent above decade averages followed by Western Australia with starts up 23.4 per cent on decade averages and Northern Territory, up almost 20 per cent.
• At the other end of the scale, Tasmanian dwelling starts were 35 per cent below decade averages, while starts in the December quarter were 3.5 per cent down on a year earlier. Next weakest was South Australia (down 2.2 per cent), Queensland (up 0.8 per cent) and Victoria (up 1.6 per cent).
• However encouragingly Queensland starts were 23.7 per cent higher than a year ago with South Australian starts up 21.5 per cent and Western Australian starts up 19.2 per cent.

Other indicators

•  Real wages were positive in just three of the eight state and territory economies in the December quarter compared with seven economies in the September quarter. Strongest growth was in South Australia at 1.2 percentage points, followed by the ACT and Western Australia (0.1 percentage points).
• Even using “underlying” inflation than “headline” inflation, real wages either flat or slightly negative in most economies, putting pressure on retail spending.
• But for home owners and buyers, home prices are higher than a year ago in all capital cities, boosting wealth levels. Strongest growth in home prices was in Sydney (up 15.6 per cent) followed by Melbourne (up 11.6 per cent).
• At the other end of the scale, home prices in Hobart are up just 0.9 per cent on a year ago while Canberra prices are up just 1.9 per cent.

Implications and outlook

• The mining construction boom is over, replaced by the home construction boom. As a result, winners and losers will change across Australia, not just industries but also state and territory economies.
• Western Australia continues to lead the rankings of best-performing economies but in the latest quarter there was little to separate it from the Northern Territory economy. Interestingly, while mining is waning as a driver of the Western Australian economy, population growth is not only the highest in the nation but above decade-average levels, providing the economy with momentum in the housing sector.
  • Momentum in the Northern Territory economy continues to be largely propelled by commercial and engineering construction but is being checked by weaker growth in the housing sector.
  • In contrast, momentum in the NSW is building, and underpinned by stronger activity in home construction although the upturn for the economy is still in its relative infancy.
  • Low unemployment is a clear strength for the ACT economy but weak confidence is constraining retail and business spending and future economic performance.
  • Home construction is still the fundamental plank of support for the Victorian economy although rising unemployment clouds the outlook for the economy.
  • The outlook remains challenging for the Tasmanian and South Australian economies. The hope is that property investors will soon switch attention away from NSW and Victoria to more affordable housing sectors.

What does it all mean?

• Over the past decade, retail spending has lifted on average by 4.6 per cent while average growth over the past five years has been 3.4 per cent. The same shift has occurred if we look just at real (inflation-adjusted) spending: down from 3.3 per cent decade-average growth to 2.1 per cent over the past five years. Is this the new normal? Perhaps. Or just an ongoing response to the GFC and its aftermath. Aussies are saving more and spending less – at least less at home. The higher Aussie dollar has also meant that Aussies are travelling more and buying more overseas. Whatever the effect, retailers have found it tougher in recent years.
• But late in 2013, there were signs of a thawing. Real spending rose 0.9 per cent in the December quarter after a 0.8 per cent rise in the September quarter – the best back-to-back gains in 18 months. And retailers benefitted from a bit more inflation – retail prices rose 1.1 per cent in the December quarter – equalling the highest quarterly rise in 4½ years.
• The biggest winners in 2013 appear to have been in recreational good retailing (sporting goods, toys etc); clothing; and specialised food (butchers, bakers, seafood etc). Certainly sporting goods, clothing and cafes/restaurants did well in the final quarter of the year, no doubt buoyed by warmer-than-normal weather in many regions.
• The losers in 2013 were in newspapers/books; liquor retailing; and footwear. Aussies continue to shift online for news. The newspapers/books category is now the smallest category in retail trade. Thirty years ago it was bigger than liquor retailing, footwear, recreational goods, cafes & restaurants and pharmacy items. The drop in liquor retailing reflects longer-run trends by Aussies to focus on quality, rather than quantity.

 

 

• In the December quarter, spending fell at hardware outlets, electrical good stores, newspapers & books and liquor retailers. No doubt the weather was so good, Aussies decided to get outside to beaches and parks as well as cafes & restaurants.
• Department stores had a tough 2013 with no real growth in sales and prices down by 0.7 per cent. But encouragingly in the December quarter, real spending at department stores rose by 2.4 per cent after falling in the two previous quarters.
• The lift in home purchase and construction translated to increased spending on furniture, carpets etc in the December quarter but at the expense of spending on renovations with hardware sales down in real terms. It is likely that these trends will extend into 2014.
• While retail prices were tame over much of the year, they did kick up in the December quarter – and not just in those areas affected by a weaker Aussie dollar. Prices at specialised retailers like butchers lifted 2.8 per cent, prices of newspapers & books rose 1.2 per cent despite weak sales; prices at liquor retailers rose by 1.2 per cent; and takeaway food prices rose by 1 per cent.

What are the implications for interest rates and investors?

• There is a bit more of a spring in the step of Aussie consumers. Spending has picked up, especially now that the election is out of the road. But warm spring and summer weather have also encouraged seasonal purchases. No doubt some home owners have been encouraged to spend via the wealth effect of higher home prices. Still renters and budding home buyers are probably less chipper and are saving more to pay the rent or housing deposit.
• The old adage is that a little bit of inflation is a good thing. Consumers are spending more and retailers are more confident to edge prices up. Provided it is only a little bit of inflation, the Reserve Bank won’t be worried, nor does it appear worried at present. But increased consumer spending and a bit more inflation support the Reserve Bank’s neutral monetary policy stance.
• Some retailers are toying with the prospect of passing on higher costs in terms of higher prices. But care will need to be taken as consumers are quick to switch affections on what they buy and where they spend their money.
• The soft job market and wage outcomes will keep a cap on spending early in 2014. But if the current momentum is maintained in the broader economy, then job growth and wages will lift over the year, offsetting some moderation in growth of home prices and thus wealth effects.
• Household goods retailers will continue to benefit from the increase in home purchase and construction with Aussies fitting out their new abodes with furniture, carpets and curtains. But hardware sales will be constrained. While paint sales may rise, demand for renovation materials and services will moderate.

• Retail trade rose by 0.5% in December to be 5.7% higher over the year.
• Retail prices are picking up, rising by 1.1% over QIV.  It looks like prior discounting pressures faced by retailers are now easing and their pricing power is rising.
• Retail volumes rose by 0.9% over the quarter and should contribute around 0.15ppt to QIV GDP growth.
• Higher retail spending outcomes are a response to low interest rates and rising asset prices.  Household spending growth should start to pick up towards more average levels which is positive for GDP growth.

The rise in retail trade over December was right on market expectations of a 0.5% rise (CBA (f): 0.8%)).  We had been anticipating a slightly stronger result based on anecdotal evidence of a decent period of Christmas spending.  Nevertheless, the outcome is still robust and is well above levels recorded over 2012‑mid 2013.  The pick up in retail trade momentum over the past five months is another indicator of the transmission mechanism of low interest rates.

There was a very large rise in food retailing (+2.5% over December) because of a strong lift in supermarket and groceries retailing (+2.8%), driving the headline result.  This is consistent with the spike in fruit and vegetable prices seen in the QIV CPI.  Across the other categories, there was a rise in department store sales (0.3%) and cafés, restaurants’ and takeaway (+0.5%) which were offset by falls in clothing and soft goods retailing (‑2.1%), household goods retailing (‑0.2%) and other retailing* (‑3.1%).  Over the past few months, higher retail outcomes have been focussed in the cafés, restaurant and takeaway category.

For the States, spending in NSW and Vic has picked up noticeably suggesting that the wealth effects of rising house prices in Sydney and Melbourne are translating into higher consumer spending.  Dwelling price growth in Sydney and Melbourne has been the highest amongst the capital cities over the past year.  Retail trade growth has slowed in WA, though it should be noted that it is slowing from an elevated level.  Annual retail trade growth in QLD and SA is below the national average, while spending in TAS has ramped up from a period of depressed sales growth.

The December retail release also contains the quarterly inflation‑adjusted volume data.  Retail volumes rose by an around‑trend 0.9% over the quarter (3.4%pa).  Retail inflation lifted by 1.1% in QIV, the highest rise in prices since March 2011.  The highest price rises occurred in food (+1.7% over QIV) and household goods (+0.7%).  The pick up in retail prices is consistent with the outcomes of the QIV CPI data released recently.  It is a sign that prior discounting pressures faced by retailers are now easing and their pricing power is rising.  This is one of the outcomes of a falling Aussie dollar.  On our forecasts, retail volumes will contribute 0.15ppt to QIV GDP growth.

The rise in retail spending bodes well for consumer spending outcomes (retail is around 31% of consumer spending).  A lift in consumer spending back to average growth rates is needed as one of the offsets to lower levels of mining investment.

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

What does it all mean?

• Inflation is contained, enough said. The Reserve Bank could cut rates further but given strength in retail spending and home construction, it won’t.
• The Reserve Bank is focussed on the future. Home construction is lifting and the increase in activity will have multiplier effects across the economy. Further, business and consumer confidence is up as people get on with life now that the election is out of the road. And it appears that more confident Aussies are starting to spend again.
• The bottom line is that the economy is coming out of its election-induced slumber. Interest rates are well and truly on hold. And the Reserve Bank will have a job on its hands to keep the Aussie dollar down. The Aussie was near US95c after the retail trade data.

What do the figures show?

Retail trade

• Retail trade rose by 0.8 per cent in August – the strongest growth in seven months – after an upwardly-revised 0.5 per cent lift in spending in August. Retail spending is up 2.9 per cent on a year ago. In inflation adjusted terms retail spending grew by 0.7 per cent in the September quarter.

Inflation gauge:

• The monthly inflation gauge rose by 0.1 per cent in October after a 0.2 per cent gain in September. The annual rate of inflation was steady at 2.1 per cent.
• The underlying rate (trimmed mean) was unchanged in October following a 0.2 per cent gain in September. The annual rate eased from 2.4 per cent to 2.2 per cent.
• Excluding volatile items like petrol and fruit & vegetables, the inflation gauge rose by 0.2 per cent in October after a 0.1 per cent rise in September. The annual rate of inflation was steady at 1.7 per cent.
• TD Securities noted that “Contributing to the overall change in October were price rises for new dwelling purchase by owner-occupiers, non-alcoholic beverages, and meat and seafood. These were offset by falls in fruit and vegetables, automotive fuel, and furniture and furnishings. The price of automotive fuel fell by 2.0 per cent in October, and the price of fruit and vegetables fell by 0.6 per cent.”

Job advertisements:

• The combined number of internet and newspaper job advertisements, as tracked by ANZ, fell by 0.1 per cent in October to stand 11.6 per cent lower than a year ago. Job ads on the internet eased 0.1 per cent in October and were down 10.8 per cent on the year. Newspaper ads fell 0.2 per cent, to be down 29.9 per cent on the year.

What does it all mean?

• After a flat period in the lead-up to the election, the Australian economy is clearly in recovery mode. A clutch of economic statistics was released today and the news was all good. Consumers are spending again and even the manufacturing sector is expanding for the first time in two years. It is clear that the Reserve Bank has no further work to do on the interest rate front – at least not for a few months. And indeed interest rates may now have bottomed.
• Rather than a “bubble”, couldn’t it just be that home prices are lifting from a low base in response to very favourable influences such as super-low interest rates? That is the sensible view, and also the right view. Over the past decade, Sydney home prices have only barely grown in line with inflation. The lift in prices over the past four months merely reflects investors and home buyers finally embracing attractive conditions.
• Only three capital cities reported higher home prices in September and only six of the eight capital cities had higher home prices than a year ago. While home prices across Australia may lift around 4-5 per cent in 2013/14, it is more likely that annual growth rates of 2-4 per cent can be expected in coming years.
• In response to strong demand for established dwellings and rising population growth, the supply of new homes needs to lift. And encouragingly it is. New home sales are now up more than 20 per cent on a year ago – the strongest growth in four years. The only reason to be worried about solid growth in home prices would be if supply was failing to respond to higher demand. The good news is that new homes are being snapped up, sending the signal to investors and developers to advance new projects.

What do the figures show?

House price prices

• The RP Data-Rismark Hedonic Australian Home Value index of capital city home prices rose by 1.6 per cent in September to record highs. Home prices are up 5.5 per cent on a year ago.
• House prices rose by 1.6 per cent in September while apartments rose 1.5 per cent. House prices are up 5.7 per cent on a year ago and apartments are up 4.4 per cent.
• The average Australian capital city house price (median price based on settled sales over quarter) was $525,000 and the average unit price was $450,000.
• Dwelling prices rose in just three of the eight capital cities in September: Sydney (up 2.5 per cent), Melbourne (up 2.4 per cent) and Adelaide (up 1.1 per cent). Prices fell the most in Darwin (down 2.5 per cent), followed by Hobart (down 2.0 per cent), Canberra (down 0.7 per cent), Brisbane (down 0.3 per cent) and Perth (down 0.1 per cent).
• Home prices are higher than a year ago across all capital cities except Hobart (down 2.9 per cent) and Adelaide (down 0.8 per cent). Prices rose most in Sydney (up 8.0 per cent), followed by Perth (up 7.6 per cent), Melbourne (up 5.4 per cent), Canberra (up 3.7 per cent), Darwin (up 2.2 per cent) and Brisbane (up 1.1 per cent).
• Total returns on capital city houses were up 10.2 per cent on a year earlier with units up 9.6 per cent.

Performance of Manufacturing

• The Performance of Manufacturing index rose by 5.3 points to 51.7 in August – the first time the index has been above 50 since June 2011. A reading above 50.0 indicates that the sector is expanding.
• Of the components, production rose from 47.1 to 49.9; new orders rose from 44.2 to 53.6; employment rose from 46.3 to 58.5; and exports orders rose from 28.3 to 31.4. The index numbers for new orders, stocks and deliveries each now exceed 50.

Retail trade

• Retail trade rose by 0.4 per cent in August – the strongest growth in six months – after a 0.1 per cent increase in July. Retail spending is up 2.3 per cent on a year ago.
• Sales by chain stores and other big retailers rose by 0.6 per cent in August after a 0.1 per cent fall in July. Chain store sales are 3.2 per cent on a year ago.
• Sales rose most at Department stores (up 6.4 per cent after a 7.9 per cent fall in July), followed by “other recreational goods” such as sporting goods and toys (up 4.6 per cent) and newspapers & books (up 1.4 per cent). Sales fell most at “other retailing” such as antiques, flower sellers and internet sales (down 2.6 per cent) followed by electrical & electronic goods (down 1.3 per cent).
• In August, spending rose most in Northern Territory (up 1.3 per cent), followed by Western Australia (up 0.7 per cent), Victoria (up 0.6 per cent), NSW (up 0.4 per cent), Tasmania (up 0.3 per cent), Queensland (up 0.2 per cent). Spending fell most in ACT (down 0.8 per cent) and South Australia (down 0.2 per cent).

New home sales

• New home sales rose by 3.4 per cent in August after falling by 4.7 per cent in July. House sales rose 5.8 per cent in August while apartment sales fell by 11.2 per cent. Over the year home sales are up 20.7 per cent – the strongest growth in four years.
• In August, house sales increased by 10.2 per cent in Western Australia, 8.2 per cent in South Australia, 7.4 per cent in New South Wales, 3.6 per cent in Queensland, and 2.4 per cent in Victoria.
• The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database covering more than 312,000 sales during 2011. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.
• The Australian Industry Group and PricewaterhouseCoopers compile the Performance of Manufacturing Index (PMI) each month. The Australian PMI is the Australian equivalent of the US ISM manufacturing gauge. The PMI is one of the timeliest economic indicators released in Australia. The PMI is useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.
• 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 Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 home builders. The survey covers around 12 per cent of the home building industry.
• The economy has turned the corner. Provided the political wrangling in the US doesn’t drag on, the outlook is encouraging. The election is out of the road, interest rates remain low, housing is taking over from mining as a growth driver and the global economy continues to heal.
• Interest rate settings are on hold, and perhaps until 2014. Certainly there is no imperative to cut rates again; although the Reserve Bank has plenty of ammunition at its disposal should it need to cut rates again.
• Retailers can look forward to Christmas trade with more confidence.

What is the importance of the economic data?

• The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database covering more than 312,000 sales during 2011. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.
• The Australian Industry Group and PricewaterhouseCoopers compile the Performance of Manufacturing Index (PMI) each month. The Australian PMI is the Australian equivalent of the US ISM manufacturing gauge. The PMI is one of the timeliest economic indicators released in Australia. The PMI is useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.
• 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 Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 home builders. The survey covers around 12 per cent of the home building industry.

What are the implications for interest rates and investors?

• The economy has turned the corner. Provided the political wrangling in the US doesn’t drag on, the outlook is encouraging. The election is out of the road, interest rates remain low, housing is taking over from mining as a growth driver and the global economy continues to heal.
• Interest rate settings are on hold, and perhaps until 2014. Certainly there is no imperative to cut rates again; although the Reserve Bank has plenty of ammunition at its disposal should it need to cut rates again.
• Retailers can look forward to Christmas trade with more confidence.

• The latest monthly retail sales data certainly paints a disappointing picture of the domestic consumer landscape. Not only did overall retail activity barely grow in July, but the all-important category of discretionary (non-food) spending fell by 0.3 per cent in July and rose by just 0.5 per cent over the year – below the rate of inflation. Whichever way you cut it, the results highlight the tough trading environment being faced by businesses.
• The election, warm winter weather and absence of price growth are the three fundamental restraints on the value of retail spending.
• As we travel across the country the overwhelming feedback is that Australian households and businesses are waiting for the election to be done and dusted so people can get on with life. Arguably not too much is likely to change across the economy until after the election.
• There are credible signs that the multiple rate cuts provided over the past few months are starting to have a more pronounced impact on the broader economy. The low interest rate environment is ensuring household budgets are looking a lot more attractive; however the decision by consumers to hold off on spending would be concerning the Reserve Bank. Especially when you consider that over the past five months retail activity has actually gone backwards by 0.5 per cent.
• The surprising weakness in the July result was the near 8 per cent slide in department store sales. Interestingly the warmer weather may have played a part in the retail weakness with less spending on heaters, blankets and other seasonal items.
• It seems that consumers are being enticed to spend only if deep discounts are on offer. However given the recent falls in the Australian dollar, retailers may not be able to discount to the same extent. And even if significant discounting was to take place to get rid of excess stock, the results don’t bode well for retailers with activity skewed towards lower-margin transactions.
• The changes and shifts in technology are certainly playing a significant part in where consumers allocate discretionary spending. Spending on newspapers and books are certainly on the outer with growth slumping by almost 18 per cent over the past year.
• Over the next couple of months the Reserve Bank is likely to consider the need for a further rate cut. However there are plenty of signs in housing and equity markets that activity levels are improving. The concern is that the improvement is taking place from a low base. The uncertainty surrounding further fiscal tightening measures by the government and the upcoming election are more temporary negative influence on confidence. The key is how the economy – particularly the business sector – reacts to the post-election environment

What do the figures show?

Retail trade

• Retail trade rose by 0.1 per cent in July after flat result in June. Annual spending growth lifted from 1.1 per cent to 1.9 per cent. However over the past five months spending growth is running at an annualised -1.2 per cent
• Non-food retailing fell by 0.3 per cent in July after a flat result in June. Non-food retail spending is up by a paltry 0.5 per cent on a year ago. Sales by chain-store retailers and other large retailers fell by 0.2 per cent in July and were up 2.9 per cent on a year ago.
• The biggest gain in spending in July occurred at “Hardware, building and garden suppliers” (up 2.9 per cent); followed by “Electrical and electronic retailing” (up 2.7 per cent).
• The biggest drop in the month occurred at “Department stores” (down 7.9 per cent) followed by by “Newspaper and book retailing”, down 2.5 per cent.
• Sales rose in five of the eight states and territories, led by the Northern Territory (up 3.1 per cent), and followed by South Australia (up 1.6 per cent), Tasmania (up 1.5 per cent), the ACT (up 0.3 per cent) and Victoria (up 0.2 per cent). Sales fell the most in Western Australia (down 0.7 per cent), followed by Queensland (down 0.2 per cent), and NSW (down 0.1 per cent).

Balance of Payments

• The broadest measure of Australia’s external position – the current account – deteriorated in the June quarter. The current account deficit worsened from $8.74 billion to $9.35 billion in the quarter. The balance of goods and services was in deficit by just $18 million after a $122 million surplus in the March quarter.
• The quarterly current account deficit weakened from 2.3 per cent of GDP to 2.5 per cent of GDP in the June quarter.
• In the June quarter exports of goods and services rose by 2.1 per cent in current price terms with volumes up by 1.3 per cent and prices up 0.8 per cent. Imports of goods and services rose by 2.3 per cent in current prices with volumes up by 1.6 per cent while prices rose by 0.7 per cent.
• The trade sector (exports less imports) will detract 0.04 percentage points from economic growth in the June quarter.
• The terms of trade (ratio of export prices to import prices) rose by 0.2 per cent in the June quarter after rising by 3.0 per cent in the March quarter.
• Net foreign debt rose by $23.1 billion to $762.2 billion in the June quarter. Net foreign debt lifted from 49.3 per cent of GDP to a three-year high of 50.8 per cent of GDP.
• The debt servicing ratio (net income on foreign debt to goods and services credits) lifted (worsened) from a 30-year low of 6.0 per cent to 6.2 per cent in the June quarter.

Government Finances

• Government consumption spending rose by 0.8 per cent in the June quarter after rising by 0.7 per cent in the March quarter. But total public investment slumped by 28.7 per cent in the June quarter after dropping by 16.4 per cent in the March quarter. Overall, spending by the government sector fell by 5.6 per cent in the June quarter after falling by 3.6 per cent in the March quarter.
  • 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 quarterly Balance of Payments figures have few short-term effects on financial markets. The importance of the data is merely to highlight Australia’s trading position with the rest of the world as well as the contribution of foreign trade (exports less imports) to the latest estimates of economic growth. Trade has been a drag on economic growth over the past four years with a lack of productive capacity holding back exports while rising incomes have boosted imports.
  • While it is yet to show up in the retail statistics, it is safe to assume that spending will pick up over the medium term. Households are flush with cash and the low interest environment, healthy house prices and stronger sharemarkets should support spending.
  • The substantial rate cuts over the past year are garnering traction across the economy. The improvement in housing activity coupled with healthy population growth should underpin an improvement in retail activity over the medium term.
  • The external accounts have no implications for interest rates. However the data has implications for the currency and the strength in debt servicing ratio supports the currency as does the lift in the terms of trade.
  • CommSec expects the Reserve Bank to stay on the interest rate side-lines over the next couple of months. The key is how the labour market reacts over the next six months. A sizeable lift in unemployment would likely cause the Reserve Bank to cut rates once more before year end.

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 quarterly Balance of Payments figures have few short-term effects on financial markets. The importance of the data is merely to highlight Australia’s trading position with the rest of the world as well as the contribution of foreign trade (exports less imports) to the latest estimates of economic growth. Trade has been a drag on economic growth over the past four years with a lack of productive capacity holding back exports while rising incomes have boosted imports.

What are the implications for interest rates and investors?

• While it is yet to show up in the retail statistics, it is safe to assume that spending will pick up over the medium term. Households are flush with cash and the low interest environment, healthy house prices and stronger sharemarkets should support spending.
• The substantial rate cuts over the past year are garnering traction across the economy. The improvement in housing activity coupled with healthy population growth should underpin an improvement in retail activity over the medium term.
• The external accounts have no implications for interest rates. However the data has implications for the currency and the strength in debt servicing ratio supports the currency as does the lift in the terms of trade.
• CommSec expects the Reserve Bank to stay on the interest rate side-lines over the next couple of months. The key is how the labour market reacts over the next six months. A sizeable lift in unemployment would likely cause the Reserve Bank to cut rates once more before year end.

Economic growth

• Ideally gross state product (GSP) would be used to assess broad economic growth. But the data isn’t available quarterly. Rather state final demand (household and business spending) is added to exports less imports to act as a proxy for GSP. Exclusion of the trade sector would provide an incorrect assessment of growth for economies such as Western Australia and Queensland.
• The Northern Territory continues to lead the rankings on economic activity. Activity in the ‘top end’ is almost 40 per cent above its ‘normal’ or decade-average level of output.
• Next strongest is Western Australia, with output around 33 per cent higher than the decade average level of output. Then follows Queensland (up 18.3 per cent) from the ACT (up 17.3 per cent).
• At the other end of the scale, economic activity in Tasmania in the March quarter was just 3.0 per cent above its decade average while South Australian activity was up almost 10 per cent on its “normal” or average output over the past decade.
• There would be little change in the rankings if “final demand” was used instead. But NSW would move ahead of Victoria in fifth spot.
• The Northern Territory also maintains the fastest annual economic growth rate in the nation, up by 13.5 per cent on a year ago, ahead of Western Australia with 7.9 per cent and NSW (3.0 per cent).
• The weakest trend economic growth rate was recorded in Tasmania (-2.6 per cent) followed by South Australia (-2.1 per cent) and Victoria (-0.1 per cent).