How are Australia’s states and territories performing?

• Each quarter CommSec attempts to find out which state or territory is Australia’s economic leader. Now in its 16^th year, the report also includes a section comparing annual growth rates for the eight key indicators across the states and territories as well as Australia as a whole, enabling comparisons in terms of economic momentum.
• Overall, the economic performances of Australian states and territories are being supported by a solid job market and strong population growth at a time of higher-than-desired price inflation.
• Australia’s state and territory economies have slowed as consumers respond to higher borrowing costs and price pressures. The future path will depend on the resiliency of the job market and interest rates.
• Western Australia now leads the national performance rankings for the first time in a decade. The state is ranked first on three of the eight indicators. In a closely fought contest, South Australia slips to second spot.
• The big mover is Queensland, which jumps up to third from fifth place. Victoria slips off the podium to fourth from third place, with Tasmania inching up to fifth from sixth spot.
• The ACT has tumbled to sixth place from fourth, followed by NSW, which is still in seventh place.
• The Northern Territory remains in eighth spot. We acknowledge that the economic performance ranking criteria disadvantages this small, open economy. As a result, we highlight the annual growth rankings—a measure of economic momentum.
• Measuring annual growth rates of the eight economic indicators, Western Australia is now alone in first spot. Queensland is second, the Northern Territory is third and the ACT is fourth. Tasmania stays fifth ahead of South Australia in sixth spot, followed by Victoria and NSW in seventh and eighth spots, respectively.

Analysis

Where to from here?

• Last quarter we noted that Western Australia was in prime position to take over from South Australia in first place. We also said Victoria, Queensland and the ACT were all in striking distance of top spot too with solid annual growth rates.
• While Western Australia and Queensland moved up the leaderboard, as expected, Victoria and the ACT lost some momentum and are now ranked mid-table in a tight cluster with Tasmania.
• Looking ahead, Western Australia could consolidate its position atop the leaderboard given its strong recent economic performance.
• South Australia’s economy has lost some momentum recently, but alongside the fast-improving Queensland economy, remains in striking distance of top spot.

Methodology

• Each of the state 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 is to find how each economy is performing compared with ‘normal’. Similar to what 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 assess 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, traditionally have had 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 NSW stood at 3.9 per cent in September 2024. But the NSW unemployment rate was 17.9 per cent below its decade average, while the South Australian jobless rate of 4.2 per cent was 27.6 per cent below its decade average. So South Australia ranks above NSW on this indicator.
• Seasonally adjusted or trend measures of the economic indicators were used to assess performance on all measures. The preference was for the less volatile trend measures. Original data is used to assess population growth.
• We now measure economic growth using real state demand plus real net trade in goods and services in seasonally adjusted terms. While the data only extends back four years, the results can be consistently compared for all economies in real terms.

Read the report.

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Ryan Felsman

Investor Implications from CommSec Economics – What does it mean for investors?

• The Reserve Bank of Australia (RBA) held its official cash rate steady at a more than 12-year high of 4.35% for a seventh successive meeting today, as widely expected, in contrast to central banks in the US, Canada, Europe, UK and New Zealand that have already begun cutting borrowing costs.
• A resilient labour market and sticky housing and services inflation continue to force the RBA Board to retain its higher-for-longer interest rate stance.
• The attending monetary policy decision statement retained the neutral forward guidance that the Board is not “ruling anything in or out” and that “policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range”.
• On inflation, the RBA said, that “inflation has fallen substantially” but noted that, “while headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high.” The statement also added, “Headline inflation is expected to fall further temporarily, as a result of federal and state cost of living relief. However, our current forecasts do not see inflation returning sustainably to target until 2026.”
• The RBA also reiterated language on the tightness of the Aussie labour market, suggesting that, “Broader indicators suggest that labour market conditions remain tight, despite some signs of gradual easing.” The statement also noted wage pressures had “eased” but the labour market remained “tight” overall.
• So what could cause the RBA to pivot towards an easing of monetary policy?
  • The latest national accounts continued to show anaemic economic activity, with gross domestic product (GDP) rising by 0.2% in the June quarter and annual growth decelerating to 1% – the weakest annual rate in 32 years outside of the Covid-19 pandemic. While the headline outcome was in line with the RBA’s August Statement on Monetary Policy (SMP) forecast, household consumption was well below policymaker’s expectations, contracting 0.2% in the quarter. More timely retail trade and credit/debit card spending in July point to ongoing softness in consumer spending and a desire to save the ‘stage 3’ personal income tax cuts, effective from July 1, 2024.
  • On prices, year-on-year growth in the monthly headline consumer price index (CPI) indicator dipped 30 basis points to 3.5% in July, with the trimmed-mean measure easing to 3.8%. The monthly CPI data for August, which will be released tomorrow, is expected to show a sharp fall in annual headline inflation to 2.7%, reflecting lower electricity prices due to government subsidies, seasonally lower holiday prices and weaker petrol prices. The trimmed mean measure of CPI could slow by 40 basis points to 3.4% in August.
  • Labour market data has also continued to soften. July’s labour force survey showed a 10 basis points increase in the unemployment rate to 4.2%. While August’s data showed an unchanged unemployment rate, a range of leading indicators of labour demand continue to soften. Data on the wage price index (WPI) in the June quarter 2024 also showed a sequential deceleration in wages growth.
  • Yesterday, S&P Global and Judo Bank reported that the Australia composite purchasing managers’ index (PMI) – a leading indicator of GDP – fell to an eight-month low of 49.8 points in September, with overall business activity declining amid a prolonged manufacturing downturn. Importantly, business price pressures eased, with falling input cost inflation enabling firms to raise selling prices at the softest pace since December 2020. The NAB’s August business survey also showed inflationary pressures easing, with final product price and purchase cost growth easing to levels last seen in early 2021.
• Commonwealth Bank (CBA) Group economists continue to forecast the September quarter 2024 trimmed mean CPI to print below the RBA’s expectations, when released on October 30. Alongside a slowdown in economic growth, that could prompt a shift in the RBA’s stance towards policy easing in December 2024.
• Money market traders continue to be more “dovish” than policymakers, pricing a 59% chance of a 25-basis point reduction for December according to LSEG data, though this is down from 64% before today’s decision and 90% in early September.
• With traders expecting the US Federal Reserve to follow-up its jumbo interest rate cut of 50 basis point last week with at least another 50 basis points worth of cuts by year-end, the divergence in rate expectations, continues to underpin the Aussie dollar (AUD).
• During Tuesday’s local session, the AUD rose in response to “dovish” Fedspeak overnight that pushed commodity currencies higher. The Aussie also got support from policy stimulus measures announced by the People’s Bank of China (PBOC) this morning, as detailed below. The measures weakened the Chinese yuan (CNY) slightly in offshore trading. The AUD also lifted from US68.43 cents to US68.68 cents – the highest level since December 28, 2023 – immediately after the RBA’s rate decision at 2.30pm AEST, where it reiterated its hawkish stance.
• Australian bonds climbed in early trading on Tuesday ahead of the RBA’s policy decision. The yield on the rate-sensitive 3-year note fell by 5 basis points to 3.50% in early trade but rose back up to 3.55% after the RBA’s decision before falling back to 3.50% at the time of writing.
• Australian shares edged lower for a second consecutive session on Tuesday, down from Friday’s record high, following a seven-day rally. Interest-rate sensitive financials shed 1.8%, with all the “Big Four” banks trading down. Consumer staples were another weight, down 1.7%, with Coles down 2.6% and Woolworths shedding 2.4%, after the country’s consumer regulator on Monday filed lawsuits accusing the supermarket giants of misleading shoppers about discounts. But miners gained 3.1%, as the Singapore benchmark iron ore prices spiked 4% on Beijing’s stimulus package. Sector heavyweight BHP jumped 3.5%, while Rio Tinto climbed 3.9%. At the time of writing, the benchmark S&P/ASX 200 index was down by 0.04% to near 8,150 points after reaching session highs of 8,172.7 points late in the morning session.
• While today’s RBA decision was expected, it could be a day to remember for China’s monetary policy, with significant policy stimulus measures finally rolled-out.
• The People’s Bank of China (PBOC) unleashed a barrage of measures to shore up the country’s struggling economy this morning, from cuts to interest rates and reserve requirements to making central bank funding available for investors to purchase stocks. Details are as follows:
  • China’s central bank will cut banks’ reserve requirement ratio (RRR) by 50 basis points to 9.5% and further reduced key interest rates to support a recovery in prices, PBOC Governor Pan Gongsheng said on Tuesday. Governor Pan also said the seven-day repo rate will be cut by 0.2 percentage points to 1.5% and deposit and other interest rates will fall as well.
  • Additionally, funds and brokers will now be able to access PBOC funding to buy stocks.
  • Interest rates on existing mortgages will also be reduced by 0.5 percentage point on average and the minimum down-payment ratio will be reduced to 15% from 25% for second-home buyers, with the easing of lending conditions providing some relief to households.
  • Finally, business activity will be encouraged via mergers and acquisitions (M&A) measures.
• Delivering a volley of stimulus measures all at once is highly unusual and possibly speaks to the urgency felt by Beijing policymakers to head-off deflationary risks and get economic (GDP) growth back on track in an attempt to hit this year’s 5% annual target. 
• Chinese stocks rose broadly on Tuesday, and bonds rallied following the announcement, with China’s blue-chip 300 stock index up 3.8%. The 30-year treasury futures for December delivery rose to a record high. China’s yuan (CNY) initially weakened about 0.2% in offshore trading after the PBOC’s announcement but was last trading around 7.0370 per US dollar (USD).

By Ryan Felsman

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• The main measure of wage growth, the Wage Price Index (WPI), grew by 0.7 per cent in the December quarter – the strongest quarterly lift in wages in 7½ years (since the March quarter 2014). Annual wage growth lifted from a 2.2 per cent to 2.3 per cent pace in the December quarter, the equal strongest rate in three years (since December quarter 2018).
• Private sector wages rose by 0.7 per cent in the December quarter – the equal most in 7½ years – to be 2.4 per cent higher when compared to a year ago – also the equal strongest equal annual pace in seven years. Public sector wages also lifted by 0.7 per cent in the December quarter – the most in 2½ years – to an annual growth rate of 2.1 per cent – the strongest pace in 18 months.

What does it mean?

• Wage growth, as represented by the Wage Price Index (WPI), grew by 0.7 per cent in the December quarter – the strongest quarterly pace in 7½ years (since the March quarter 2014). Annual wage growth lifted from a 2.2 per cent to 2.3 per cent pace in the December quarter, the equal strongest rate in 3 years (since December quarter 2018).
• Workers in the private sector fared even better, with wages growing by 2.4 per cent on a year ago – the equal strongest growth rate in seven years (since December 2014).
• Including bonuses, private sector wages grew by 1.2 per cent in the December quarter to an annual rate of 3.0 per cent), the equal strongest pace in nine years (since December quarter 2012). This outcome suggests that firms that are having difficulty sourcing labour are using other strategies to attract and retain workers, including sign-on and retention bonuses, increased workplace flexibility, more internal training and increased hiring of less-experienced staff.
• Pay increases occurred following prolonged Delta lockdowns in Australia’s south-east in 2021. Annual wage growth has lifted off record lows of 1.4 per cent in late 2020 with economic activity generally recovering following lockdown-related labour market disruptions. Public servants – accounting for around 16 per cent of Australia’s workforce – saw record low annual wage gains of just 1.3 per cent in the June quarter of 2021, restrained by pay freezes and cuts.
• But public sector wages also lifted by 0.7 per cent in the December quarter – the most in 2½ years – to an annual growth rate of 2.1 per cent – the strongest pace in 18 months. Despite the end of state government pay freezes, the majority of public sector workers are employed in Public administration and safety (up 2.3 per cent), Education and training (up 2.1 per cent), and Health care and social assistance (up 2.4 per cent) with annual pay gains in these sectors lagging the private sector.
• The reference date for the WPI was the last pay period ending on or before the third Friday of the middle month of the quarter (in this case November 19, 2021). While this was after the reopening of Australia’s south-east, most pay negotiations likely occurred before then, and perhaps even during the Delta lockdowns.
• That said, the 2.5 per cent increase in the National Minimum Wage award for tourism and hospitality workers was delayed from July 1 to November 1, 2021, boosting wage growth in the December quarter. Annual wages growth for Accommodation and food services workers jumped by 3.5 per cent in December, the strongest pace in a decade.
• The re-opening of stores after Delta lockdowns saw retail workers quarterly pay jump by 1.2 per cent in the fourth quarter, the equal strongest pace in over a decade (since September quarter 2011). Annual wage growth accelerated to an 8-year high of 2.6 per cent. Pandemic-induced consumer demand saw wages lift by 2.5 per cent in the December quarter for factory workers, a 6-year high. And the buoyant Aussie housing market contributed to annual pay gains of 2.5 per cent for workers in the Rental, hiring and real estate services industry, a 7½-year high.
• But Covid-19 lockdowns and restrictions weighed on the pay of workers in the Electricity, gas, water and waste services (up 1.3 per cent) and Transport, postal and warehousing services (up 1.8 per cent) over the year to December. And the higher-paying Mining industry (up 1.8 per cent), also lagged average annual pay gains.
• Another way to examine wage growth is to adjust it for changes in inflation, referred to as real wage growth. It measures the increase in wages relative to the increase in other prices in the economy. For consumers, real wages matter for their standard of living as it measures how well wage growth keeps pace with inflation in consumer prices.
• A common measure for assessing real wages from a consumer perspective uses the WPI deflated by the headline Consumer Price Index (CPI), which reflects changes in the prices that consumers face. In fact, the acceleration in the annual growth rate of the CPI to 3.5 per cent in the December quarter has pushed real wages growth further into negative territory – a third successive quarter of negative real wage growth. But when compared to the Reserve Bank of Australia’s (RBA) preferred underlying measure of CPI – the trimmed mean CPI – which excludes the volatile food and energy components – annual real wage growth is marginally negative, down just 0.3 percentage points. But this is still the worst outcome in 7½ years. Nevertheless, Aussie households are likely to have drawn down on the excess savings accumulated during lockdowns, supporting aggregate consumer spending.
• But after a lengthy period of below target inflation growth, it appears that the Reserve Bank (RBA) is determined to drive down the unemployment rate below 4 per cent (“full employment”) in an attempt to stoke annual wage growth of 3-4 per cent.
• In minutes of the RBA Board February 1 meeting, members said it is, “likely to be some time before aggregate wages growth would be at a rate consistent with inflation being sustainably at target.” And, “A further pick-up in wages growth was expected as the labour market continues to tighten. However, the pick-up was expected to be only gradual and there was uncertainty about the behaviour of wages as the international border re-opens and the unemployment rate declines to historically low levels.”
• RBA Governor Philip Lowe has also said in recent communication that, “we don’t have a specific benchmark (for wage growth), but what we want to see in the Wage Price Index (and other labour cost measures)… and in our liaison with businesses which is very important …. is evidence that wages are trending higher”.
• We think that this is a sensible approach as the Wage Price Index (WPI) does not capture non-wage compensation or the impact of compositional changes on aggregate labour income. Observation of other wage growth measures is therefore, warranted by policymakers in determining their policy settings. In fact, leading indicators of wage growth, including the NAB’s labour costs and IHS Markit’s input costs measures are both near record highs in early 2022. And the Commonwealth Bank’s (CBA) wage rate indicator – derived from internal data on wages and salaries paid into customer bank accounts, taking into account tax rates and levies – has also lifted sharply over 2021.
• Another factor likely to influence wage growth is inflation expectations, as wage-setting decisions are forward looking and wages are typically negotiated infrequently. Market inflation expectations, which can be measured by taking the difference in yield between nominal bonds and inflation-indexed bonds (break-evens), are rising as price pressures build on the back of pandemic demand-supply imbalances. This is important as it will likely influence how firms and employees expect inflation to evolve over the period for which wages are set will influence wage negotiations.
• CBA Group economists, therefore, expect both price and wage growth to accelerate further in the coming months, as the labour market tightens and mobility picks up with the Omicron virus wave passing its peak.
• In fact, we expect wage growth, as measured by the Wage Price Index (WPI) to run at a six-month annualised pace of over 3 per cent through to the end of March 2022, as the labour market tightens, driving the unemployment rate down to 4 per cent or below. And our preliminary estimate is for the annual growth rate in trimmed mean inflation to be 3.5 per cent by the end of March 2022 – a six-month annualised pace of 4.4 per cent.
• Our estimate is above the RBA’s inflation forecasts, so we expect the RBA to move to an explicit hiking policy bias at the May Board meeting with our expectation for the first hike in the cash rate to occur at the June 2022 meeting.

What do you need to know?

Wage Price Index (WPI) – December quarter

• Wage growth, as represented by the Wage Price Index (WPI), grew by 0.7 per cent in the December quarter – the strongest quarterly pace in 7½ years (since the March quarter 2014). Annual WPI growth lifted from a 2.2 per cent to 2.3 per cent pace in the December quarter, the equal strongest rate in three years (since December quarter 2018).
• Including bonuses (total hourly rates of pay), wages rose by 1.1 per cent – the biggest lift in over two years – in the December quarter to be up by 2.8 per cent on a year ago, the equal strongest annual pace in nine years.
• Private sector wages rose by 0.7 per cent in the December quarter – the most in 7½ years – to be 2.4 per cent higher when compared to a year ago – also the equal strongest equal annual pace in seven years. Including bonuses, private sector wages grew by 1.2 per cent in the quarter – the biggest lift in two years – to be up 3.0 per cent on a year ago, the strongest annual pace in nine years.
• Public sector wages also lifted by 0.7 per cent in the December quarter – the most in 2½ years – to an annual growth rate of 2.1 per cent – the strongest pace in 18 months.  Including bonuses, public sector wages grew by 0.7 per cent in the quarter to be up 1.9 per cent on a year ago.
• Industries with fastest annual wage growth over the year to December: Accommodation and food services (up 3.5 per cent, a decade high); Retail trade (up 2.6 per cent, an 8-year high); Manufacturing (up 2.5 per cent, a 6-year high); Rental, hiring and real estate services (up 2.5 per cent, a 7½-year high); and Professional, scientific and technical services (up 2.5 per cent).
• Industries with slowest annual wage growth over the year to December: Electricity, gas, water and waste services (up 1.3 per cent); Transport, postal and warehousing (up 1.8 per cent); and Mining (up 1.8 per cent).
• By state and territories over the year to December: NSW (up 2.4 per cent, equal highest in 7 years); Victoria (up 2.3 per cent); Queensland (up 2.4 per cent, highest in 7 years); South Australia (up 2.1 per cent); Western Australia (up 2.0 per cent, equal 6½-year high); Tasmania (up 3.0 per cent, an 8½-year high); Northern Territory (up 2.1 per cent); and the ACT (up 2.6 per cent, an equal 8½-year high).

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Data were assessed across 88 SA4 regions that tend to have populations of between 100,000 to 300,000 people. The data assessed included population growth, business counts, unemployment and home building approvals. The most recent data was compared with long-term averages (‘normal’ levels) to find the best performing economies.

The best performing regions were found to be Melbourne-South East; Sydney-Baulkham Hills and Hawkesbury; Melbourne-West; the Gold Coast; and Sydney-Blacktown.

Comparing regional economies

Every quarter CommSec assesses eight indicators to determine the best performing state and territory economies. There is no single ‘best’ way to determine relative economic performance. But use of a broad range of economic indicators with assessments against long-term averages determines the best-performing economies rather than identifying just the biggest or fastest growing economies.

Looking at the current pace of growth to assess economic momentum may yield perverse results to judge performance. For instance building approvals may be up sharply on a year ago but from depressed levels. Overall spending may still be well below “normal”. And focussing on regions with the fastest population growth would ignore those regions that are now growing faster than what would be considered ‘normal’ for that region.

Unfortunately only building approval and labour market figures are readily available for regions. Consistent and comparable data on population and business counts are available up to the 2017/18 year. So only four indicators can be used to determine Australia’s best performing regional economies. While assessment of a small number of indicators is not ideal, the results are useful as a basis for further research.

The SA4 level was chosen as a point of comparison as consistent results were available for regions of significant size ( . At the SA4 level there are 88 regions with consistent data to be assessed. The results can be further broken down to a SA3 level (358 regions) and SA2 level 9 (2,310 regions). Capital city areas can be excluded to focus on rural and regional areas.

The best performing Australian regional economies

The regions that consistently performed best across the four criteria were: Melbourne-South East; Sydney- Baulkham Hills and Hawkesbury; Melbourne-West; the Gold Coast; and Sydney-Blacktown

Given the strength of the Victorian and NSW economies, it shouldn’t be a surprise that regions within Sydney and Melbourne performed well in the survey. But Queensland’s Gold Coast is included in the top performing economies while the ACT, the non-metro Richmond-Tweed region, Sunshine Coast, Geelong and Illawarra were amongst the regions that performed consistently well on the four criteria.

The top regions

Melbourne-South East

The region includes around 40 suburbs and the SA3 regions of Cardinia, Casey-North, Casey South, Dandenong and Monash. Population stands near 840,000 and is growing around 3 per cent per annum. The number of businesses stand at around 70,000. The unemployment rate averaged 5.4 per cent in 2018. And there were over 10,000 council approvals to build new homes in 2018.

Sydney-Baulkham Hills and Hawkesbury

The region includes around 20 suburbs and the SA3 regions of Baulkham Hills, Dural-Wisemans Ferry, Hawkesbury and Rouse Hill-McGraths Hill. Population stands near 245,000 and is growing around 2 per cent per annum. The number of businesses stand at around 30,000. The unemployment rate averaged 3.0 per cent in 2018. And there were over 4,200 council approvals to build new homes in 2018.

Melbourne-West

The region includes around 20 suburbs and the SA3 regions of Brimback, Hobsons Bay, Maribyrnong, Melton – Bacchus Marsh and Wyndham. Population stands near 820,000 and is growing around 3.5 per cent per annum. The number of businesses stand at around 55,000. The unemployment rate averaged 7.1 per cent in 2018. And there were almost 12,000 council approvals to build new homes in 2018.

Gold Coast

The region includes around 60 suburbs and the SA3 regions of Broadbeach-Burleigh, Coolangatta, Gold Coast- North, Gold Coast Hinterland, Mudgeeraba-Tallebudgera, Nerang, Ormeau-Oxenford, Robina, Southport, Surfers Paradise. Population stands near 622,000 and is growing around 2.6 per cent per annum. The number of businesses stand at around 70,000. The unemployment rate averaged 4.3 per cent in 2018. And there were around 6,500 council approvals to build new homes in 2018.

Sydney–Blacktown

The region includes around 30 suburbs and the SA3 regions of Blacktown, Blacktown-North and Mount Druitt. Population stands near 370,000 and is growing around 2.5 per cent per annum. The number of businesses stand at around 23,500. The unemployment rate averaged 4.9 per cent in 2018 .And there were over 4,800 council approvals to build new homes in 2018.

State of the regions: Strongest by State/Territory

Sydney and Melbourne regions dominate the top rankings across the regions. But what regions are best performing in each state and territory? The ACT ranks highly in home building approvals but other regions are showing greater improvement on unemployment. In South Australia, Adelaide-Central Hills ranks highly on growth of businesses and building approvals. In Tasmania, Hobart ranks highly on home building approvals. In Western Australia, Perth-South West ranks highly on relative population growth. And in the Northern Territory, Darwin’s population is 7.3 per cent above the decade average although business numbers and building approvals are below decade-average levels.

Rural & regional areas

If we strip out metropolitan areas, which rural/regional areas are performing best? The Gold Coast is joined by Richmond-Tweed on the NSW North Coast, the Sunshine Coast, Geelong and the Illawarra, south of Sydney.

Richmond-Tweed, Geelong and Illawarra rank highly on relative population growth and building approvals. Sunshine Coast had an unemployment rate averaging 6.2 per cent in 2018, slightly above the decade average.

Strongest regions: Relative population growth

The Victorian population is growing at the fastest rate in Australia. So it shouldn’t be as surprise to find three Melbourne regions in the top five regions with the strongest relative population growth. (Compares the population in 2017/18 versus the average population over the past decade). The population of Sydney City and the inner south has been growing at a fast 2.9 per cent average annual rate over the past decade.

Strongest regions: Relative growth of business numbers

Sydney and Melbourne regions have actively been creating new businesses in recent years. In part this can be attributed to the growth of the ‘gig’ economy – ride-sharing, taxi and delivery services, home businesses and home-sharing, accommodation services like Airbnb.

Strongest regions: Relative growth of home building

The growth of new home building has been spreading outside Sydney and Melbourne in the past few years. The Central Coast, north of Sydney, as well as the Illawarra, south of Sydney, were amongst the best-performing regions for home building in 2018. The ACT, regional Victoria, Tasmania and Queensland regions have also been notable for relative home building growth.

Strongest regions: Relative unemployment

In the past four years, unemployment in Sydney’s Outer West and Blue Mountains has halved from 6.4 per cent to 3.2 per cent. A similar result has been achieved in the Far West, Orana region of NSW.

What does it all mean?

Just as it was demonstrated in the “CommSec State of the States” report, Victorian and NSW regions dominate the top positions in the State of the Regions report. But clearly with only four indicators to highlight relative economic performance, there are gaps in our knowledge about the current state of regional economies. Ideally data on spending, incomes and investment would assist our knowledge of current economic performance at a regional level.

The State of the Regions report does bring together the most recent economic indicators at a regional level and highlights results and trends useful for further analysis.

Population in all but eight of the 88 regions over the last financial year was ahead of decade averages with Melbourne, Brisbane and Sydney regions recording strongest growth. Home building was more mixed: 48 of the 88 regions had council approval numbers ahead of decade averages in 2018. Encouragingly, annual average unemployment rates in 51 of 88 regions in 2018 were below decade averages. At the other end of the scale, Queensland and Western Australian regions dominate the regions with unemployment above longer-term averages.

Also encouragingly, the number of businesses continue to expand across the country with increases in 64 of 88 regions compared with decade averages. In 2017/18 there were 8 per cent more businesses across Australia than on average over the past decade.

Craig James, Chief Economist and Ryan Felsman, Senior Economist 

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• Home prices: The CoreLogic Home Value Index of national home prices fell by 0.49 per cent in April – the smallest decline since September – to be down 7.2 per cent over the year. Prices fell in all capital cities except Canberra (up by 0.4 per cent). Regional prices fell by 0.3 per cent.
• Shares outperform residential property: Total returns on national dwellings fell by 3.6 per cent in the year to April with houses down by 4.2 per cent on a year earlier and units were down by 1.9 per cent. In contrast, the S&P/ASX All Ordinaries Accumulation Index lifted by 10.2 per cent over the year to April.
• Manufacturing sector: The Australian Industry Group Australian Performance of Manufacturing Index rose by 3.8 points to 8-month highs of 54.8 points in April. The ‘final’ CBA Manufacturing Purchasing Managers’ Index (PMI) declined by 1.1 points to 50.9 points. Any reading over 50 indicates expansion.

Home price data is important for retailers, especially those focussed on consumer durables. The manufacturing data provides guidance for companies in the Industrials sector.

What does it all mean?

• National home prices continued to decline in April, albeit at the slowest rate since September last year. The property downturn in Sydney and Melbourne appears to be easing. That said, housing activity may have been distorted by the extended school, Easter and Anzac Day holiday period.
• With federal election fever gripping the country perhaps shrewd property buyers see the nation’s capital as a potential beneficiary of change in government, or in fact a bigger government? Canberra saw a decent 0.4 per cent gain in home prices in April and previous monthly price movements have been relatively stable when compared to other larger capital cities. The 2018 OECD Regional Well-being Study ranked the ACT as the world’s most liveable region. Public sector job creation has been solid.
• The ACT economy is in good shape at the moment. Economic growth, as measured by State Final Demand, grew by 5 per cent over the year to December, supported by solid population growth near 2 per cent per annum. The annual growth rate in retail spending was up by a healthy 4.3 per cent in March. And the jobless rate is the lowest in the nation at 3.6 per cent.
• And home building and the purchase of homes is nation- leading when compared to the decade average. The ACT government is investing almost $3 billion in infrastructure projects over the next four years.
• With the Aussie sharemarket hitting 11-year highs in April, total returns for shares continue to exceed returns on residential property, which are near decade lows. If you include dividends, the S&P/ASX All Ordinaries Accumulation Index increased by 10.2 per cent over the year to April, outperforming total returns for national dwellings, which were down by 3.6 per cent.
• While there will be some anxiety around the possible impact of slowing home prices on household spending and the ‘wealth effect’, the rebound in sharemarkets so far in 2019 could potentially support consumer sentiment together with tax cuts.
• The rebound in global manufacturing activity is welcome after a ‘soft patch’ in late 2018. The AiGroup’s measure of Aussie factory activity was the strongest since September. Pleasingly, six of the seven underlying activity indexes, including production, new orders, deliveries, exports, sales and employment, all expanded in April. Importantly, the CBA survey said that “business confidence remained positive in April”, potentially signalling a further improvement in conditions.

What do the figures show?

Home prices

• The CoreLogic Home Value Index of national home prices fell by 0.49 per cent in April – the smallest decline since September – to be down 7.2 per cent over the year. Prices fell in all capital cities except Canberra (up by 0.4 per cent). Regional prices fell by 0.3 per cent (down 2.6 per cent on the year).
• In capital cities, prices fell by 0.5 per cent to be down 8.4 per cent over the year to April. House prices fell by 0.6 per cent and apartment prices fell by 0.5 per cent. House prices were down 9.1 per cent on a year ago and apartments were down by 6.6 per cent.
• In regional areas, house prices fell by 0.3 per cent and apartment prices fell 0.5 per cent in April to be down 2.8 per cent and 2.2 per cent respectively on the year.
• The average Australian capital city house price (median price) was $628,587 and the average unit price was $526,813 in April.
• Dwelling prices fell in seven of the eight capital cities in April. Home prices fell in Darwin (down 1.2 per cent), Hobart (down 0.9 per cent), Sydney (down 0.7 per cent), Melbourne (down 0.6 per cent), Brisbane and Perth (both down 0.4 per cent), and Adelaide (down 0.1 per cent). But prices rose in Canberra by 0.4 per cent.
• Home prices were lower than a year ago in five of the eight capital cities in April. Prices fell by the most in Sydney (down 10.9 per cent); Melbourne (down 10.0 per cent); Perth (down 8.3 per cent); Darwin (down by 7.1 per cent) and Brisbane (down 1.9 per cent). But prices are still positive in Hobart (up 3.8 per cent), Canberra (up 2.5 per cent) and Adelaide (up 0.3 per cent).
• Total returns on national dwellings fell by 3.6 per cent in the year to April with houses down by 4.2 per cent on a year earlier and units were down by 1.9 per cent. In contrast, the S&P/ASX All Ordinaries Accumulation Index lifted by 10.2 per cent over the year to April.

Manufacturing Purchasing Managers’ Indexes

• The Australian Industry Group (AiGroup) Australian Performance of Manufacturing Index rose by 3.8 points to 8-month highs of 54.8 points in April. The ‘final’ CBA Manufacturing Purchasing Managers’ Index (PMI) declined by 1.1 points to 50.9 points. Any reading over 50 indicates expansion.
• According to AiGroup, “Manufacturers in the food and beverages sector reported higher than usual demand for this time of year (June quarter is typically slower for this sector), although their input prices did rise in April. The current range for the Australian dollar is supporting export orders. Infrastructure projects, particularly in NSW and Victoria, are supporting demand for machinery and equipment and metals products, but overall activity levels in these sectors remains relatively weak.”
• According to CBA/Markit, “The slowdown in Australia’s manufacturing sector gained momentum at the start of the second quarter. The headline index sank to its lowest level in the three-year survey history, dragged down by lower output and markedly slower order book growth. Employment was stagnant, while firms cut back on purchasing activity for the first time since the series inception. Cost pressures intensified and business confidence was the second-lowest on record.”

What is the importance of the economic data?

• The CoreLogic Hedonic Australian Home Value Index is based on Australia’s biggest property database. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the CoreLogic Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.
• The AiGroup and CBA Purchasing Manager indexes (PMIs) for services and manufacturing are released each month. The Australian PMIs are the local equivalents of similar indexes released for other countries. The PMIs are amongst timeliest economic indicators released in Australia. The PMIs are useful not just in showing how the sectors are performing but in providing some sense about where they are heading. The key ‘forward looking’ components are orders and employment.

What are the implications for interest rates and investors?

• The housing market continues to gradually rebalance. Home prices declined in April, but the rate of deceleration in prices was the slowest in eight months. In fact, the three-month rolling average Sydney median house price lifted by $35,000 to $870,000 in April. That said, the decline in prices has spilled over into more regional cities, towns and suburbs. Further modest falls in home prices are expected.
• Tighter lending standards – specifically the availability of credit – are weighing on demand for home loans. Investor demand is also waning due to falling property prices and increased stamp duty for foreign buyers. Listings of homes for sale have increased.
• Prospective buyers may also be dissuaded from purchasing properties due to political uncertainty around the Labor Party’s proposed negative gearing policy and the upcoming Federal election. On the flip side, Canberra’s desirable quality of life and solid jobs market, supported by public infrastructure spending and broader government activity, are attracting more people to the nation’s capital, supporting the property market.
• First home buyers and renters are the ‘winners’ from the property downturn. Capital city rents are up by just 0.4 per cent over the year to April, led by falls in Sydney (down 3.1 per cent).
• With household disposable incomes under pressure and mortgage debt still elevated, Reserve Bank policymakers will hope that the upturn in sharemarkets continues, ‘cushioning the blow’ from the negative wealth effect of falling home prices.
• Consumer spending, proposed Federal Budget tax cuts and the strength of the labour market will determine the future direction of interest rates.
• All eyes will be on the Reserve Bank’s monetary policy statement on Tuesday to see whether an explicit easing bias is inserted into the commentary.
• CommSec doesn’t expect a change in the official cash rate in the foreseeable future, but the risks are still tilted to rate cuts.

Ryan Felsman, Senior Economist

The post Election fever boosts Canberra property? Manufacturing activity hits 8-month high appeared first on AdviserVoice.

• Wages: The wage price index rose by 0.6 per cent in the September quarter following a downwardly- revised 0.5 per cent increase (previously +0.6 per cent) in the June quarter. To 2-decimal points, annual wage growth lifted from 2.14 per cent to a 31⁄2-year high of 2.29 per cent.
• Bonuses paid: Including bonuses (ordinary time hourly rates), wages rose by 0.8 per cent – the most in 3 years – in the September quarter to be up by 2.7 per cent on a year ago, up from 2.5 per cent in the June quarter.
• Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment index rose by 2.8 per cent to a reading of 104.3 in November. The sentiment index is above its long-term average of 101.5. A reading above 100 denotes optimism.
• Housing outlook: Consumers’ views on whether it was a good ‘time to buy a dwelling’ rose by 11.8 per cent to a 31⁄2-year high of 114.8 and is up 16.7 per cent over the year to November. And consumers in Sydney showed a strong gain of 37.0 per cent to 131.9 in November, up from 96.3 in October – the strongest level in 5 years.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The data on wages highlights the costs faced by businesses and gives insights into future interest rate decisions.

What does it all mean?

• The steady pick-up in our pay packets continues. Over the year to September, wages grew at the quickest pace since March 2015. Importantly, it is further confirmation that wage growth has bottomed and should continue to gradually lift as the labour market tightens.
• In yesterday’s NAB Business Survey release for October, the proportion of Aussie businesses reporting skills shortages in the mining, construction, manufacturing, retail, wholesale trade, transport and storage, finance, business and property services, and the recreation and personal services industries were well above the long-run average going back to June 30 2000. Therefore, it was no surprise to see the utilities, mining and transport industries achieving the biggest annual pay gains between the June and September quarters.
• And those Aussies working in health and social assistance, education and the public sector are benefitting from solid jobs growth over the past year, with wages lifting by the most (up by 2.5-2.8 per cent) in these industries over the past year.
• Employers continue to top up wages with bonus payments. Wages are up 2.7 per cent on a year ago if bonus payments are included, well ahead of the 1.9 per cent headline inflation rate.
• As always, it’s important to relate wages to prices. Wage growth is slower than in the past, but so is price inflation. Wages are ahead of prices, especially when you use a broader measure of prices – the household consumption deflator. And positive real wage growth is good for spending.
• Aussie consumer confidence continues to bounce around, but the number of optimistic Aussie households (surveyed level above 100) has exceeded the number of pessimists for 12 consecutive months. And consumers continue to defy the ‘gloomsters’ on views of the housing market. In fact, some Sydneysiders appear to see some upside to falling home prices due to better affordability. Those surveyed in the Emerald City that considered it a good ‘time to buy a dwelling’ surged in November with the sub-index at its highest level since September 2013.

What do the figures show?

Wage price index

• The wage price index rose by 0.6 per cent in the September quarter following a downwardly-revised 0.5 per cent increase (previously +0.6 per cent) in the June quarter. Annual wage growth lifted from 2.1 per cent to 2.3 per cent.
• To 2-decimal points, wages rose 0.62 per cent in the September quarter – the biggest increase in 41⁄2 years. Annual growth lifted from 2.14 per cent to a 31⁄2-year high of 2.29 per cent.
• The ABS reported that “There was a higher rate of wage growth recorded across the majority of industries in comparison to this time last year, reflecting the influence of improved labour market conditions”.
• Private sector wages rose by 0.5 per cent in the September quarter while public sector wages rose by 0.6 per cent. Annual growth of private sector wages was steady at 2.1 per cent. Annual growth of public sector wages lifted from 2.4 per cent to 2.5 per cent.
• Including bonuses (ordinary time hourly rates), wages rose by 0.8 per cent – the most in 3 years – in the September quarter to be up by 2.7 per cent on a year ago, up from 2.5 per cent in the June quarter.
• Industries with fastest annual wage growth: Health care & social assistance (up by 2.8 per cent); Education & training (up by 2.7 per cent); and Utilities (up by 2.7 per cent).
• Industries with slowest annual wage growth: Mining (up by 1.8 per cent); Retail trade (up by 1.8 per cent); Communications (up by 1.9 per cent); and Construction (up by 1.9 per cent).
• Annual wage growth across States & Territories: NSW, 2.4 per cent; Victoria, 2.5 per cent; Queensland, 2.3 per cent; South Australia, 2.2 per cent; Western Australia, 1.6 per cent; Tasmania, 2.6 per cent; Northern Territory, 1.7 per cent; and ACT, 2.2 per cent.
• In terms of real wage growth, doing best is Queensland; wages are up 2.3 per cent versus 1.8 per cent inflation. But real wage growth is -0.3 percentage points in the ACT.

Consumer confidence

• The Westpac/Melbourne Institute survey of consumer sentiment index rose by 2.8 per cent to 104.3 in November. The sentiment index is above its long-term average of 101.5. A reading above 100 denotes optimism. The survey of 1,200 people was conducted from November 5-9.
• The current conditions index was unchanged, but the expectations index rose by 4.7 per cent.
• Four of the five of the components of the index increased in November:
  • The estimate of family finances compared with a year ago rose by 4.9 per cent;
  • The estimate of family finances over the next year rose by 3.2 per cent;
  • Economic conditions over the next 12 months rose by 1.7 per cent;
  • Economic conditions over the next 5 years rose by 9.7 per cent;
  • The measure on whether it was a good time to buy a major household item fell by 3.5 per cent.
• Housing outlook: A good time to buy a dwelling? The index rose by 11.8 per cent and is up 16.7 per cent over the year to November. House price expectations fell by 2.3 per cent to be down by 27.0 per cent on a year ago.
• Unemployment expectations: Unemployment expectations fell by 1.9 per cent in November and are down by 7.9 per cent over the year. The Unemployment Expectations index at 120.4 is at the second lowest level in 71⁄2 years.

What is the importance of the economic data?

• The Wage Price Index has been compiled since September quarter 1997 and measures quarterly changes in wage and salary costs for employees. The index is based on a representative sample of employees, and includes measures of non-wage costs including superannuation, payroll tax, public holiday and workers compensation. The Wage Price Index is useful in measuring wage pressures in the economy. While strong growth in wages would boost domestic spending, it could also serve to lift employer costs and prices and add to economy-wide inflationary pressures. The wage price index is a measure of hourly pay rates (excluding bonuses).
• 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?

• Today’s wages growth and consumer confidence data are both encouraging. Pay is lifting gradually off low levels and households remain optimistic, despite wealth headwinds associated with falling home prices and sharemarket volatility.
• Household consumption still remains a wildcard. While consumers remain positive about the solid jobs market with unemployment expectations near 71⁄2-year lows, Westpac did highlight in its annual question on consumer Christmas spending plans that “a third of Australians expect to spend less on gifts than they did last year, with 56 per cent expecting to spend about the same and just 10 per cent expecting to spend more” in the lead-up to the all-important Aussie Christmas retail trading period.
• That said, Reserve Bank forecasts continue to be met. The economy is moving in the right direction. Eventually wage growth will lift to the more ‘normal’ range of 3-4 per cent but the process will only be gradual. In the UK and US, annual wages growth has hit decade highs of around 3 per cent in recent months with unemployment rates of 3.7–4.1 per cent.
• There is still spare capacity in the Aussie labour market and the unemployment rate will need to come down further for wage growth to lift inflation. For example, in NSW and Victoria, the unemployment rates are around 4.4-4.5 per cent, but annual wages growth is still 2.4-2.5 per cent in both states. All eyes are now on tomorrow’s jobs report release.
• CommSec doesn’t expect a change in interest rates until late 2019.

Ryan Felsman, Senior Economist

The post Best annual wages growth in three and a half years appeared first on AdviserVoice.

The infrastructure boom continues on Australia’s eastern seaboard.

Engineering construction work done

• Engineering: Engineering construction work done rose by 2.2 per cent in the June quarter, down by 5.2 per cent from a year ago. A month ago, it was estimated that engineering construction was up by 0.4 per cent in the quarter, but down 7.2 per cent over the year.
• Infrastructure boom: Engineering work done for the public sector rose by 2.7 per cent in the June quarter. Over the year to June, a record $37.4 billion of work was done for the public sector.
• Work yet to be done: Excluding resources, engineering work yet to be done stands at $43.1 billion, below record highs. But outstanding road and railway work were both just below record highs. And electricity generation, transmission and distribution work was at five-year highs.

The data on engineering construction work is important for builders, building material companies, professional services, developers, government businesses and other dependent sectors and industries.

What does it all mean?

• The infrastructure boom continues on Australia’s eastern seaboard. Strong population growth and government spending are supporting a gargantuan pipeline of building activity in Victoria, New South Wales and Queensland.
• In fact, construction work done in Victoria is at record highs, the highest in New South Wales in five years and at the strongest level since December 2015 in Queensland. While activity is largely concentrated on public transport-related rail, road and airport projects, work done on much-needed electricity generation, transmission and distribution infrastructure is at five-year highs.
• And it appears that the surge in construction activity and public transport-related infrastructure spending are generating price pressures. Over the year to June, construction costs were up 3.3 per cent – just below nine-year highs. And engineering costs rose by 4.2 per cent – a seven-year high.
• Quantity surveyor WT Partnership’s recently released Australian Construction Market Conditions report says that infrastructure tender price growth will increase by up to seven per cent next year. Big-ticket projects, such as Badgerys Creek Airport in Western Sydney and the Melbourne Metro Rail Tunnel, will boost demand for building materials, plant, equipment and scarce labour – especially engineers, project managers and construction trades.

• Wage pressures are building in the construction sector. In fact, skilled vacancies for construction managers are around the highest level in seven years.

What do the figures show?

• Engineering construction work done rose by 2.2 per cent in real (inflation-adjusted) terms in the June quarter – the fifth gain in six quarters. But work done is down 5.2 per cent on a year ago. Previously, engineering work was reported as rising by 0.4 per cent in the June quarter to be down 7.2 per cent over the year.
• Value of work completed for the public sector rose by 2.7 per cent in the quarter while private sector activity rose by 1.8 per cent.
• Over the year to June a record $37.4 billion of infrastructure work was completed (engineering work for the public sector.)
• Construction work rose in four of the states and territories in the June quarter: NSW (up 3.3 per cent); Victoria (down 4.7 per cent); Queensland (up 3.4 per cent); South Australia (up 9.6 per cent); Western Australia (up 2.7 per cent); Tasmania (down 1.0 per cent); Northern Territory (down 16.2 per cent); ACT (down 16.5 per cent).
• Work yet to be done: There was $64.4 billion of engineering work yet to be done as at June 2018, up from $59.8 billion in the previous quarter. Excluding the resource sector (coal, oil, pipelines etc.) work to be done stands at $43.1 billion, below the record high of $45.3 billion in March 2012.
• As at June 2018, $18.3 billion of work was to be completed on roads and highways and $11.7 billion on railways. And work to be completed on electricity generation, transmission and distribution was the highest in five years at $6.8 billion.
• In original terms, engineering work commenced in the June quarter was $29.0 billion, down by 2.0 per cent in the quarter. Almost $90.1 billion of engineering work was started in the past year.

What is the importance of the economic data?

• The Bureau of Statistics releases quarterly estimates of Engineering construction activity. The estimates include value of engineering construction work done, commenced and yet to be done, classified by state or territory, commodity (roads, bridges, pipelines etc.), sector (public/private) undertaking the work, and sector for whom the work is being done. The data is a comprehensive assessment of the infrastructure pipeline.

What are the implications for interest rates and investors?

• According to surveyor Rider, Levett and Bucknall, a record 735 cranes were hoisted above our major cities in the September quarter, reflecting the continuing strength of the construction sector within the Australian economy. Around 321 cranes are located in Sydney, followed by 192 in Melbourne and 112 in South-East Queensland.
• Construction companies such as Lend Lease, Thiess, Brookfield Multiplex, BGC and Leighton have cranes and advertising scattered all over our major cities. They have plenty of work and are hoovering up highly skilled engineers, project managers and construction workers.
• Demand for labour and materials in infrastructure and construction-related sectors will increase over the coming year, pressuring contractors and sub-contractors.
• According to WT Partnership, tender prices will grow by 3-7 per cent in New South Wales, Victoria, South-East Queensland, Tasmania, South Australia and the ACT in 2018-2019.
• Major projects under construction include the Sydney and Melbourne Metros. And projects that will enter the pipeline include the East Coast Inland rail line, Melbourne Airport rail, Brisbane Cross River Rail and Badgerys Creek rail.
• CommSec expects official interest rates to remain stable until late 2019.

By Ryan Felsman, Senior Economist

The post Record annual infrastructure building appeared first on AdviserVoice.

• The week kicks-off on Monday with the “Overseas Arrivals & Departures” publication from the Australian Bureau of Statistics (ABS). As well as providing data on tourist arrivals and departures, there are figures on longer-term migration flows. Tourist arrivals fell by 1.9 per cent to 756,300 in April, down from a downwardly-revised record high of 770,800 (previously 771,600) in March. Departures rose by 1.3 per cent in April to a record high of 923,400, up from 911,200 in March. Over the past year a record 800,240 permanent and long-term migrants moved to Australia, up by 4.0 per cent.
• On Tuesday the minutes of the last Reserve Bank Board meeting are released. Each meeting there is a special issue or topic that is discussed. And that discussion can prove useful in gauging member views on interest rate sensitivities. For example, wages growth remains a key focus of Board members. In the July 3 policy Statement, the commentary highlighted that, “there are increasing reports of skills shortages in some areas”. Economists will be keeping an eye out for some evidence of this development through its business liaison program.
• Also on Tuesday is the regular weekly gauge on consumer confidence from Roy Morgan and ANZ.
• On Thursday the ABS issues the June employment report. Job-creation has slowed in recent months with 12,000 full-time jobs added in May. The unemployment rate is at six-month lows of 5.4 per cent and the last time it was lower was 5½ years ago in January 2013. And key leading employment indicator – the Bureau of Statistics’ job vacancies – was at record high levels in May with the strongest annual growth rate in 7½ years. Economists tip an increase in total jobs of around 15,000 during the month.
• On Friday the CBA Business Sales Indicator is released for June. Growth in economy-wide spending slowed in May, growing at the weakest trend pace for over a year. The BSI rose by 0.3 per cent in trend terms in May. And the annual trend growth in sales held at 7.7 per cent – the fastest growth for 3½ years.

Overseas: China data blockbuster

• Over the coming week China economic growth, investment, production, retail sales and house price data are all issued. In the US, retail spending, housing, industrial production and the US Fed’s Beige Book will be in focus.
• The week begins in China on Monday when the much-anticipated June quarter GDP report is released, together with the June monthly retail sales, investment and production activity data. Growth appears to have decelerated in most industries, including construction, consumption, service, manufacturing, employment and trade.
• Chinese production was strong in April, but weakened in May. And the June official manufacturing purchasing managers index was softer, signalling weaker growth momentum. A rebound in retail sales is tipped in June after annual spending growth was the slowest in 15 years in May. Fixed asset investment is expected to moderate further as the economy rebalances. Overall, annual GDP growth is tipped to fall by 0.1 per cent to 6.7 per cent.
• Also on Monday, US retail spending data and the New York Fed purchasing managers’ index is released. Consumer spending surged 0.8 per cent in May and a further 0.6 per cent lift is forecast in June.
• On Tuesday China house prices data is scheduled to be issued. Out of the 70 cities the National Bureau of Statistics monitors, more cities saw housing prices increase in May compared with April.
• Also on Tuesday in the US, the National Association of Home Builders releasing the activity survey for July, industrial production and weekly data on chain store sales are issued. Sentiment among US homebuilders fell in June to equal the lowest level this year, reflecting sharply elevated lumber costs. And industrial production is tipped to rebound by 0.5 per cent in June after a contraction in manufacturing output in May.
• On Wednesday the US Federal Reserve takes centre stage. In the most recent Beige Book – a national survey – Fed officials characterised the economy as performing well. Manufacturers raised production, banks reported stronger loan demand and home builders’ activity was robust. Trade worries will be a key focus in June’s edition.
• Also on Wednesday US housing starts and building permits are issued for June. In May, starts posted the biggest increase since July 2007, up 5 per cent, led by a 62 per cent surge in the US Midwest.
• On Thursday the weekly data on new claims for unemployment insurance is issued, together with the influential Philadelphia Federal Reserve manufacturing gauge and Conference Board’s Leading Economic index. Seven of ten leading indicators increased in May, with building permits, manufacturing workweek and initial claims down.

Financial markets

• The US company reporting season continues. FactSet is forecasting S&P500 earnings growth of 20 per cent for Q2 18.
• On Monday Bank of America, BlackRock and Netflix report.
• On Tuesday, Goldman Sachs, Johnson & Johnson, United Continental and UnitedHealth are amongst those reporting.
• On Wednesday, Alcoa, AMEX, eBay and Morgan Stanley report.
• On Thursday, earnings are due from Bank of New York/Mellon, Domino’s Pizza, Microsoft, Nucor, PayPal and Travelers report.
• On Friday, Baker Hughes, General Electric, Honeywell, Schlumberger and State Street report.

Upcoming economic and financial market events

Australia

Monday July 16 – Tourist arrivals (May) – China is our major source of tourists

Tuesday July 17 – Reserve Bank Board minutes – Minutes of the July 3 meeting

Tuesday July 17 – Weekly consumer confidence – Latest reading from Roy Morgan & ANZ

Thursday July 19 – Employment/Unemployment (June) – Jobs may have lifted by 15,000

Friday July 20 – CBA Business Sales index (June) – Measure of economy-wide sales

Overseas

Monday July 16 – China economic growth (June quarter) – Annual growth forecast to fall to 6.7% from 6.8%

Monday July 16 – China activity data (June) – Sales, production and investment

Monday July 16 – US New York Fed purchasing managers (July) – Influential regional survey

Monday July 16 – US Retail sales (June) – Tipped to lift by 0.6%

Tuesday July 17 – China House prices (June) – Annual growth has decelerated to 4.7%

Tuesday July 17 – US Industrial production (June) – A 0.5% gain is expected

Tuesday July 17 – US NAHB housing market index (July) – A gauge of housing market sentiment

Wednesday July 18 – US Federal Reserve Beige Book (June) – Commentary on US economic conditions

Wednesday July 18 – US Housing starts (June) – Starts rose 5.0% in May

Thursday July 19 – US Philadelphia Federal Reserve index (July) – Another influential regional survey

Thursday July 19 – US Leading index (June) – Index rose 0.2% in May

The post Australia: Money for nothing appeared first on AdviserVoice.

• Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment rose by 1.8 per cent in January – a 4-year high. The index now stands at 105.1 (long-term average 101.5). A reading above 100 denotes optimism.
• Number of home loans: The number of loans (commitments) for home owners (owner-occupiers) rose by 2.1 per cent in November after falling by 0.6 per cent in October.
• Value of home loans: The value of new housing commitments (owner occupier and investment) rose by 2.3 per cent in November after rising by 0.3 per cent in October.
• First home buyers: The proportion of first-time buyers in the home loan market rose from 17.6 per cent to a 5-year high of 18.0 per cent in November (decade-average 17.9 per cent).
• Record home loan size: The average home loan across Australia stood at $388,900 in October, up by 3.3 per cent on a year ago – a record high.
• Home building: Dwelling starts (commencements) rose by 0.7 per cent in the September quarter after a 4.3 per cent lift in the June quarter (previously reported as a 1.2 per cent increase). A record 67,067 apartments are currently being built in NSW.

What does it all mean?

• Home prices might be declining but lending is still increasing. With interest rates at record lows and job security improving, Aussies felt comfortable enough to increase their mortgage debt in November. The average new home loan size now stands at record highs.
• Lending to owner occupiers and investors both increased in November. While lending by owner occupiers is still up on a year ago, finance provided to investors is down sharply over the year.
• The bank regulator, the Australian Prudential Regulation Authority (APRA), has successfully engineered a slowing of the Sydney investor housing market. According to the REA Group, demand from Chinese investors seeking Sydney properties has fallen by over 30 per cent since last year.
• One beneficiary of cooling home prices in Sydney and Melbourne are first home buyers who continue to take out loans.
• While dwelling investment likely peaked in 2016, a record number of apartments are currently being built in NSW. Further, apartment approvals are strong, especially in Sydney and Melbourne, supported by solid population and employment growth.
• The construction boom looks set to continue. A record amount of residential and commercial building work is yet to be done. This is complemented by government spending on road, rail and public transport-related infrastructure.

What do the figures show?

Consumer confidence

• The Westpac/Melbourne Institute survey of consumer sentiment rose by 1.8 per cent in January – a 4-year high. The index now stands at 103.3 (long-term average 101.5). A reading above 100 denotes optimism.
• The current conditions index rose by 3.5 per cent and the expectations index increased by 6.8 per cent.
• Four of the five the components of the index rose in January:
  • The estimate of family finances compared with a year ago
    fell by 1.1 per cent;
  • The estimate of family finances over the next year was up
    by 1.7 per cent;
  • Economic conditions over the next 12 months was up by 2.6 per cent;
  • Economic conditions over the next 5 years was up by 5.4 per cent;
  • The measure on whether it was a good time to buy a major household item was up by 0.5 per cent.

• Housing outlook: A good time to buy a dwelling? The index was up by 6.1 per cent in January. However, house price expectations fell by 4.4 per cent.
• Unemployment expectations: Unemployment expectations fell by 3.8 per cent in January and they are now down by 13.7 per cent over the year.

Housing finance – number

• The number of loans (commitments) for home owners (owner-occupiers) rose by 2.1 per cent in November
  after falling by 0.6 per cent in October.
• Loans by owner-occupiers for the construction of homes increased by 2.0 per cent in November after declining over three consecutive prior months. Construction lending had fallen by 6.6 per cent in three months.
• Loans to buy newly-erected dwellings rose by 2.6 per cent in November after declining by 2.1 per cent in October.
• Loans for the purchase of established dwellings (excluding refinancing) increased by 2.1 per cent in November. Loans had declined by 2.7 per cent in the previous two months.
• The number of refinancing transactions rose by 1.5 per cent in November after falling by 0.2 per cent in October.

Housing finance – value

• The value of new housing commitments (owner occupier and investment) rose by 2.3 per cent in November after rising by 0.3 per cent in October.
• Owner-occupier loans increased by 2.7 per cent and investment loans rose by 1.5 per cent in November. Investor loans are now down by 8.3 per cent on a year ago.
• The value of loans by owner-occupiers and investors to build new homes rose by 4.8 per cent in November to $3.45 billion – the highest level on record.

Housing finance – other statistics

• The value of cancelled loans rose by 3.7 per cent in November after declining by 8.0 per cent in October.
• Commitments actually advanced (loans made) jumped by 8.4 per cent in November and are up by 7.0 per cent on a year ago.
• The proportion of first-time buyers in the home loan market rose from 17.6 per cent to a 5-year high of 18.0 per cent in November (decade-average 17.9 per cent).
• The proportion of fixed rate loans fell from 16.7 per cent to 15.8 per cent in November – the lowest in 8 months.
• And the average home loan across Australia stood at $388,900 in October, up by 3.3 per cent on a year ago – a record high.

Dwelling starts

• Dwelling starts (commencements) rose by 0.7 per cent in the September quarter after a 4.3 per cent lift in the June quarter (previously reported as a 1.2 per cent increase).
• House starts fell by 3.4 per cent while apartments rose by 5.9 per cent. Work started on 218,993 new dwellings over the year to September 2017, down 6.3 per cent from the record high of 233,616 dwellings in the year to March 2016.
• Across Australia, starts in the September quarter fell in four states/territories: NSW (down by 8.2 per cent);
• Victoria (up by 17.1 per cent); Queensland (down by 5.9 per cent); South Australia (up by 0.2 per cent); Western Australia (down by 6.3 per cent); Tasmania (down by 0.7
  per cent); Northern Territory (up by 67.4 per cent); and the ACT (up 67.4 per cent).
• In the year to September, dwelling starts were higher than the decade average in all the states & territories except for the Northern Territory (down 26.4 per cent), Tasmania (down 14.1 per cent), and Western Australia (down 19.9 per cent). Starts in NSW (71,284) were 62.4 per cent above the decade average. Victorian starts were 23.1 per cent above the decade average with Queensland up 9.7 per cent, South Australia up 5.3 per cent and ACT up 36.4 per cent.
• A record 67,067 apartments are currently being built in NSW, from a total of 87,048 homes being built.
• A record $67.3 billion of residential and commercial building work is yet to be done (completed), up 10.7 per cent
  on a year ago.
• Across Australia, 219,741 homes are being built, down just 2 per cent on the 224,314 record set in September quarter 2016.

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.
• Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
• The Australian Bureau of Statistics releases data on dwelling commencements (starts) each quarter. The figures provide guidance on future construction activity. If construction begins on new houses or apartments, it signifies work for building trades.

What are the implications for interest rates and investors?

• The heat has come out of the housing market as APRA engineers a slow-down in investor lending. There may be fewer Chinese investors, but Aussies are still borrowing – especially first home buyers.
• The strong jobs market and record low mortgage rates are encouraging households to increase their housing- related debt. Consumer confidence is at 4-year highs amid growing expectations for a better economic outlook. The desire to purchase a household item has rebounded.
• The number of homes being built across Australia has come off all-time highs, but not significantly. Population growth remains firm in many states, providing fundamental support for new construction. The stand-out is the record number of apartments being built in NSW. Both NSW and Victoria are also leading finance approvals, while the mining states of Queensland and Western Australia are bouncing-off lows.
• The number of apartments being built at present is unprecedented, and with new council approvals lifting this potentially adds to the pipeline of housing activity. Retailers, building material suppliers and developers will continue to benefit from dwelling investment and construction activity.

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