Consumers upbeat; Investment loans slump: CommSec's Craig James

Consumers upbeat; Investment loans slump: CommSec's Craig James
Consumers upbeat; Investment loans slump: CommSec's Craig James

GUEST OBSERVER

Were Aussie consumers disappointed that rates weren’t cut? No. Were consumers worried about talk of a higher consumption tax? No. Consumers seem resigned to the fact that tax reform has to occur.

And presumably Aussie consumers are aware that if the consumption tax goes up, then other taxes will be cut or reduced such as income tax rates. The reason why governments are talking about a higher consumption tax is because the population is ageing and thus changes to the tax system will be necessary. It is encouraging that Aussie consumers are taking a pragmatic, forward-looking view of future economic challenges.

Business conditions remain favourable with a smoothed measure of conditions (rolling annual average) near 5- year highs. Importantly, capacity use is near 4-year highs but inflation is still contained. There is the issue of ‘pass-through’ though – purchase costs are increasing at a faster rate than final retail prices. Businesses are likely to pass-through higher costs (higher import costs as a result of a lower Aussie dollar) at some point.

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Consumers upbeat; Investment loans slump: CommSec's Craig James

Heat is quickly coming out of the investment housing market. The 8.5 % slump in investor loans was the biggest drop in seven years. Regulators will be satisfied that their measures are working to slow demand.

Aussie consumers are sensing that rates are near their lows with refinancing up the most in six months.

What do the figures show?

National Australia Bank Business Survey:

The NAB business conditions index was unchanged at +8.9 points in October. The rolling annual average eased from a 5-year high of +7.2 to +7.0. The business confidence index eased from +5.3 points to +2.1 points. The survey was conducted from October 26 to 30.

NAB noted: “The notable dispersion in business conditions across industries continued into October, with 3 of the 8 major industry groups (mining, manufacturing and wholesale) reporting negative conditions. Services industries continue to outperform, while the mining industry trails well behind. A majority of industries improved in the month, but recreation & personal services and construction both saw sizable falls in their conditions index.”

“There was a notable deterioration in both conditions and confidence in Western Australia, consistent with ongoing drag from mining – confidence also fell considerably in South Australia. In contrast, Queensland recorded sizable improvements in the month (especially in business conditions). Looking through the monthly volatility, conditions were still strongest in NSW and Victoria (of the mainland states). Business confidence showed similar trends, although Queensland remains the highest of the mainland states (in trend terms).

Components

The index of trading conditions rose from +14.7 to +16.4; employment eased from +3.1 points to +2.8 points; profitability eased from +8.6 points to +7.6 points; forward orders fell from +2.8 points to minus 1.8 points.

Inflationary indicators were generally softer in October. The monthly reading of labour costs rose at a 0.3 % quarterly rate in October, down from +0.6 % in September. Purchase costs rose at a 0.9 % quarterly rate in October, after a 0.9 % rise in September. Final product prices were up 0.3 % in October (+0.3 % in September). And retail prices were up by 0.5 % in October after a 1.1 % rise in September.

Capacity utilisation rose from 81.3 to a near 4-year high (highest in 45 months) of 81.4 %. Capacity use is above the long-term average of 81.0 %.

The proportion of firms reporting that they did not require credit improved from a record high of 79 % to 65 % in October.

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Consumers upbeat; Investment loans slump: CommSec's Craig James

Consumer sentiment

The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.4 points (1.2 %) to 116.6 in the week to November 8. Confidence is up 1.6 % over the year and above the average of 111.4 since 2014.

Two of the five components of the index rose in the latest week:

The estimate of family finances compared with a year ago was unchanged at +11;

The estimate of family finances over the next year was down from +27 to +25;

Economic conditions over the next 12 months was up from +2 to +5;

Economic conditions over the next 5 years was up from +6 to +14;

The measure of whether it was a good time to buy a major household item was down from +30 points to +28 points.

Housing finance - number

The number of new owner-occupier housing loans (commitments) rose by 2.0 % in September. Excluding the refinancing of dwellings, the number of loans was up by 0.7 %.

Loans by owner-occupiers for the construction of homes rose by 1.8 % in September; loans to buy newly-erected dwellings rose by 5.4 % and loans for the purchase of established dwellings (excluding refinancing) was unchanged. The number of refinancing transactions rose by 4.7 %.

Housing finance - value

The value of new housing commitments (owner occupier and investment) fell by 1.6 % in September. Owner-occupier loans rose by 3.0 % while investment loans fell by 8.5 %.

The value of loans by owner-occupiers and investors to build new homes fell by 4.1 % in September after falling 6.8 % in August. The value of loans to build stood at $2.43 billion, the lowest level in 14 months.

Housing finance – other statistics

The proportion of first-time buyers in the home loan market eased from 15.8 % to 15.4 % in September. (However the figures take into account refinancing loans and as such the figures may be skewed). Fixed rate loans as a share of all loans were steady at a four-year low of 9.5 %. And the average home loan across Australia stood at $379,400 in September, up 15.4 % on a year ago and equalling the fastest pace of growth in 12 years.

Chinese inflation

Chinese consumer prices fell by 0.3% in October to be up 1.3% over the year – the lowest annual rate in five months. Food prices fell by 1.0% in the month to be up 1.9% over the year. Non-food prices rose by 0.1% to be up 1.0% over the year.

In September pork prices fell by 1.9% (15.8% over the year); eggs fell by 6.9% and vegetables fell by 5.6%. Transport & communications prices were unchanged in the month; Clothing lifted 0.6%; Health Care rose 0.2%; Household equipment and maintenance services was unchanged; Tobacco and liquor rose by 0.1%; Entertainment & Education fell by 0.3% with travel services down by 1.8%.

Chinese producer prices fell by 0.4% in October after falling 0.4% in September. Prices fell 5.9% in the year to October, the same as September and equalling the biggest fall in six years. Prices in petroleum processing, coking and the nuclear fuel processing industry fell by 22.5% over the year.

What is the importance of the economic data?

The monthly National Australia Bank business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.

The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.

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

What are the implications for interest rates and investors?

The latest data supports the Reserve Bank’s upbeat view on the economic state of play. CommSec expects interest rates to remain unchanged over the next year.

Owner-occupiers are still entering the home loan market – presumably some sense bargains now that heat is coming out of the market, supply has lifted and fewer investors are to be found. The Reserve Bank would be happy at the mix of lending in the housing market.

Reuters: “China is confident of achieving economic growth of around 7 % in 2015, Vice Finance Minister Zhu Guangyao told a press conference in Beijing on Tuesday.” 

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Consumers upbeat; Investment loans slump: CommSec's Craig James

 

Craig James is the chief economist at CommSec.

Craig James

Craig James

Craig James is the Chief Economist at CommSec, interpreting ‘big picture’ economic and financial trends.

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