RBA tips firmer growth: CommSec's Savanth Sebastian

RBA tips firmer growth: CommSec's Savanth Sebastian
RBA tips firmer growth: CommSec's Savanth Sebastian
Consumer sentiment predictably eased last week after a stellar gain in the previous week.
Concerns about higher interest rates and the outlook for the housing market together with a softer Aussie dollar led to the modest softening of sentiment. But consumers are still more upbeat than a year ago and sentiment is above the short- term average. Also, the Reserve Bank believes that the question on the outlook for family finances is most instructive and the latest result is still well above average levels.

The Reserve Bank Board rationalised the soft economic growth figures in the June quarter: “The weakness in the June quarter had reflected temporary, weather-related disruptions to resource exports as well as the ongoing decline in mining investment.” The Board expects a pickup in the September quarter. If this fails to occur, then this could prompt the Board to assess the need for more stimulus.

Overall the RBA Board remains watchful – there are no indications that the neutral policy stance was likely to change any time soon.
What do the figures show?

Consumer sentiment

The weekly ANZ/Roy Morgan consumer confidence rating fell 2.0% to 113.3 in the week to October 18 from a 15-week high. Confidence is up 1.5% over the year and above the average of 111.4 since 2014.
RBA tips firmer growth: CommSec's Savanth Sebastian

Four of the five components of the index eased in the latest week:

  1. The estimate of family finances compared with a year ago was down from +9 to +8;
  2. The estimate of family finances over the next year was down from +30 to +25;
  3. Economic conditions over the next 12 months was steady at -1; 
  4. Economic conditions over the next 5 years was down from +13 to +11;
  5. The measure of whether it was a good time to buy a major household item was down from +27 points to +23 points. 

The key quotes from the Board minutes:

Stronger growth expected: “Members noted that overall growth was expected to have strengthened in the September quarter, with indications of growth in resource exports and dwelling investment.”

Risks: “The key domestic sources of risk to financial stability, and stability of the Australian economy more broadly, revolved around developments in local property markets.”

Job market: “Members also noted that conditions in the labour market had strengthened further over recent months and were somewhat better than had been expected earlier in the year. Nevertheless, spare capacity remained in the economy, domestic cost pressures were very low and inflation was expected to remain consistent with the target over the next one to two years.”

Bank lending: “Banks were also reportedly becoming increasingly wary of lending to property developers in markets that were thought to be at risk of becoming oversupplied.”

Housing data: “In relation to lending for housing, members noted that the data on the split of lending to owner-occupiers and investors were of questionable quality at present.”

Imports of goods

The Australian Bureau of Statistics noted the following. “Preliminary analysis shows that goods debits (imports) on a balance of payments basis in original terms rose $1,562m (7%) to $25,043m between August and September 2015.

In seasonally adjusted terms, goods debits rose $332m (1%) between August and September 2015 to $23,853m. This is the highest on record surpassing the revised August 2015 estimate of $23,521m. Consumption goods rose $264m (3%) and non-monetary gold rose $161m (47%). Intermediate and other merchandise goods fell $59m (1%) and capital goods fell $34m (1%).

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.

What are the implications for interest rates and investors?

CommSec expects no change to interest rates over the coming year. 

RBA tips firmer growth: CommSec's Savanth Sebastian
 Savanth Sebastian is an economist for CommSec 
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