Content RBA, confident consumers: CommSec's Savanth Sebastian
GUEST OBSERVER
Reserve Bank Board upbeat on economy rebalancing: “Members noted that recent domestic data had generally been positive.”… “Overall, the forecasts for the Australian economy were for output growth to strengthen gradually over the next two years, as the drag on GDP growth from falling mining investment gradually diminished and activity progressively shifted to non-mining sectors”.
The Reserve Bank Board left the door open for further rate cuts if growth slows, noting that the “that the outlook for inflation may afford some scope for a further easing of monetary policy should that be appropriate to lend support to demand.”
Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating fell from a 1-month high, down by 0.8% to 115.4 in the week to December 13. Confidence is up 4.7% over the year.
The measure of whether it was a good time to buy a major household item was up from +31 to +35 points – a near six-month high.
Car sales: New vehicle sales rose by 1% in seasonally adjusted terms in November after a 3.7% gain in October.
Higher home prices: The Bureau of Statistics reports that Australian home prices rose by 2% in the September quarter to stand 10.7% higher over the year.
The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The RBA Board minutes provides insights on the interest rate outlook. The data on car sales provide insights into consumer and business spending.
What does it all mean?
Consumer sentiment predictably eased last week from four week highs. No doubt the media discussion and preview on the expected blowout in Mid-Year Fiscal outlook added a modest dampener to the latest result. Overall confidence remains healthy consumers are still more upbeat than a year ago and sentiment is above the short-term average.
More confident consumers are more likely to spend, but there are no guarantees. But importantly the measure of whether it was a good time to buy a major household item lifted to the highest in nearly six months – a result that bodes well during the festive season. The upbeat employment data last week would have encouraged households when it comes to job security.
The Reserve Bank Board minutes make for interesting reading. Although there was no significant surprise in views. Board Members were slightly more upbeat on the prospects for the Australian economy and continued to reiterate firmer growth over the next two years. No doubt the weaker Australian dollar is supporting a rebalancing and helping to offset the weakness in mining investment. Interestingly the more upbeat view came ahead of the stronger employment numbers last week.
If the anticipated lift in activity does not take place, then this could prompt the Board to assess the need for more stimulus. And clearly the low inflation result has left the door open for a further rate cut.
Annual new vehicle sales are at record highs, suggestive of underlying strength in business and consumer sentiment and finances. But the trends aren’t uniform with sales of sports utility vehicles consistently setting new highs while passenger car sales are 24% below record levels.
What do the figures show?
Consumer sentiment
The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.9 points (0.8%) to 115.4 in the week to December 13. Confidence is up 4.7% over the year and above the average of 111.4 since 2014.
Three of the five components of the index fell in the latest week:
The estimate of family finances compared with a year ago was down from +10 to +6;
The estimate of family finances over the next year was down from +29 to +26;
Economic conditions over the next 12 months was down from +2 to 0;
Economic conditions over the next 5 years was unchanged at +10;
The measure of whether it was a good time to buy a major household item was up from +31 to +35 points – a near six-month high.
Reserve Bank Board minutes
The key quotes from the Board minutes:
Stronger growth expected: “Overall, the forecasts for the Australian economy were for output growth to strengthen gradually over the next two years as the drag on GDP growth from falling mining investment gradually diminished and activity progressively shifted to non-mining sectors of the economy. Business surveys suggested that there had been an improvement in conditions in non-mining sectors over the past year, which had been accompanied by stronger growth in employment and a steady rate of unemployment.”
Job market: “Employment growth had been strong in October and the unemployment rate had declined to 5.9%, although in trend terms it remained in the 6–6% range it had been in since the middle of 2014. Members observed that unemployment rates for most states were in the range of 5ó–6ó%.”
Housing market: “Growth in lending to investors in the housing market appeared to have eased, with a moderation in the pace of growth in housing prices in Sydney and Melbourne over recent months. Housing price growth had mostly remained subdued in other cities. While the recent changes to some lending rates for housing would reduce demand slightly, overall conditions remained quite accommodative. Members observed that supervisory measures had been helping to contain risks that may arise from the housing market.”
Inflation: “Even so, members recognised that there was still evidence of spare capacity in the economy, including in the labour market. Wage growth remained low and underlying inflation was expected to be consistent with the target over the next one to two years.”
Outlook: “Based on the available data and the forecasts, the Board decided that leaving the cash rate unchanged at this meeting was appropriate. Members judged that the outlook for inflation may afford some scope for a further easing of monetary policy should that be appropriate to lend support to demand. The Board would continue to assess the outlook, and hence whether the current stance of policy would most effectively foster sustainable growth and inflation consistent with the target”
New car sales:
According to the Australian Bureau of Statistics (ABS) new vehicle sales rose by 1%in November after a 3.7% slide in October. Passenger car sales rose by 0.7%, while sales of sports utility vehicles fell by 1.6%. But sales of “other” vehicles (includes utilities, panel vans, cab chassis, goods carrying vans, rigid trucks, prime movers, non-freight carrying trucks, and buses) rose by 6.6%.
New vehicles sales were up by 6% over the year. Passenger car sales in October were down by 3.6% while SUVs sales were up by 17% and “other vehicles” were up by 10.1%.
In rolling annual terms, a total of 1,152,601 new vehicles were sold over the year to November – a record high.
Annual sales of SUVs (403,698) hit fresh record highs in November, while annual sales of other vehicles rose from 229,635 to 232,341. Sales of passenger vehicles stood at 516,562 in the year to November, down from 517,899 in the year to October 2015.
Residential property prices
The Bureau of Statistics (ABS) has released its Residential Property Price indexes.
“The price index for residential properties for the weighted average of the eight capital cities rose 2.0%t in the September quarter 2015. The index rose 10.7% through the year to the September quarter 2015. The capital city residential property price indexes rose in Sydney (+3.1 per cent), Melbourne (+2.9 per cent), Brisbane (+1.3 per cent), Adelaide (+1.2 per cent), Canberra (+1.3 per cent) and Hobart (+0.5 per cent) and fell in Perth (-2.4 per cent) and Darwin (-0.4 per cent).
Annually, residential property prices rose in Sydney (+19.9 per cent), Melbourne (+9.9 per cent), Canberra (+4.0 per cent), Brisbane (+3.8 per cent), Adelaide (+3.5 per cent) and Hobart (+1.7 per cent) and fell in Perth (-3.3 per cent) and Darwin (-2.0 per cent).
The ABS notes that as at September 2015 there were 9.57 million homes in Australia and the average price was $612,200.
What is the importance of the economic data?
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.
The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
The Australian Bureau of Statistics provides seasonally adjusted and trend estimates of industry data. The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
The Australian Bureau of Statistics (ABS) provides quarterly data on residential prices. The figures provide further perspectives on the state of the housing purchase sector.
What are the implications for interest rates and investors?
The Reserve Bank will be keeping a close eye on how the non-mining business sector evolves. The outlook to invest and create more employment will be a driving factor on any further rate cuts.
CommSec expects no change to interest rate settings in 2016, although the risks lie with another rate cut given the low inflation outcomes.
Savanth Sebastian is an economist for CommSec