Volatile apartment approvals drive dwelling stats: AMP Capital's Shane Oliver

Volatile apartment approvals drive dwelling stats: AMP Capital's Shane Oliver
Volatile apartment approvals drive dwelling stats: AMP Capital's Shane Oliver

GUEST OBSERVER

Australian economic data is mixed. 

Building approvals rose a slightly greater than expected 3.1 percent, thanks to a bounce in normally volatile apartment approvals.

However, this followed a 6.6 percent decline last month, they are down 9% year on year and the trend is clearly down. Building approvals are still high pointing to a continued high level of dwelling construction, but the clear downtrend indicates that the contribution of home building to economic growth over the year ahead will slow. This may also be exacerbated as wealth effects from housing slow as momentum in Sydney and Melbourne property prices cools down.

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Volatile apartment approvals drive dwelling stats: AMP Capital's Shane Oliver

Source: ABS, AMP Capital

 

Retail sales were flat in February, contrary to market expectations for a 0.4 percent gain. Annual growth slowed to 3.3 percent yoy and momentum appears to have slowed although this may be partly due to very low retail price inflation compared to the past. The loss of momentum may also reflect the waning impact from last year’s interest rate cuts and slowing wealth gains from housing as house price gains slow in Sydney and Melbourne.

In terms of the latter while annual retail sales growth in NSW (at 4.6 percent year on year) and Victoria (+4.8 percent yoy) are strong and continuing to offset weakness in WA (where retail sales are -0.2%yoy) there has been some loss of trend monthly growth in both NSW and Victoria which are now trending at 0.2 percent mom compared to around 0.4-0.5 percent mom around mid last year.  

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Volatile apartment approvals drive dwelling stats: AMP Capital's Shane Oliver

Source: ABS, AMP Capital

ANZ job ads rose just 0.2 percent mom in March, after a 1.2 percent fall in February but with annual growth at 10 percent year on year they still point to solid jobs growth for now.

Finally the Melbourne Institute Inflation Gauge for March was flat and up just 1.7 percent yoy, with the trimmed mean similarly flat month on month and up just 1.6 percent year on year, telling us that inflationary pressures remained very weak in the March quarter. 

While the RBA is likely to leave interest rates on hold at its April meeting, the slowing trend in building approvals, slowing momentum in retail sales and indications that March quarter inflation will be weak are consistent with our view that the RBA remains likely to cut interest rates again in the months ahead.

With mining investment continuing to fall and the contribution to growth from housing set to fade over the year ahead it’s critical that trade exposed sectors like tourism, higher education and even manufacturing contribute to growth over the year ahead but the rise in the $A is a threat to this. The best way for the RBA to check this threat is to ramp up its jawboning to get the $A down again and to ultimately cut interest rates again in the months ahead.

SHANE OLIVER is head of investment strategy and economics and chief economist at AMP Capital and is responsible for AMP Capital's diversified investment funds.

Tags: 
Apartments Building Approvals

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