Jobs figures more likely to influence RBA’s interest rate decision than building data: CBA

A rise in unemployment would be more likely to compel the Reserve Bank to cut interest rates than poor building approvals data, according to Commonwealth Bank senior economist Michael Workman.

“Today’s [building approvals] data would be seen as supportive of another RBA rate cut. 

“We see another rate cut coming soon. But think that it will be more because of clear signs of jobs-related weakness. 

“There is a school of thought that has the level of residential construction activity as more attuned to the state and local government land release and development cost process, rather than a direct interest rate issue,” Workman says.

March ABS unemployment data will be released on April 12 – the February release showed unemployment up slight from 5.1 to 5.2%.

Workman points out that the 7.8% February building approvals slump was mainly due to volatility in the multi-unit segment and driven by a 66% drop in multi-unit approvals in NSW, which partially unwound the large rise of 86%, in January.

“Excluding NSW, residential approvals rose by 5.5% but are still 8.3% lower than a year ago.

“Putting the residential approvals data into perspective, the moving annual total was running at 146,000 in February. This time last year it was 17,000 which was slightly lower than the 178,000 peak hit in October 2010,” he says. 

CommSec chief economist Craig James says the RP Data Rismark figures (dwelling prices up 0.2% in March), slump in building approvals and solid demand reported from Sydney estate agents at auctions over the past weekend show simply that “demand exceeds supply in many regions, supported by improved affordability and higher migration”. 

“While builders will continue to compete hard for available work, home owners are likely to see the value of their homes rise over the year. CommSec tips a modest 3% lift in prices over 2012. 

“Another fall in the manufacturing gauge (The Performance of Manufacturing index fell by 1.8 points to 49.5 suggesting manufacturing is contracting), weak dwelling approval and a low inflation reading keeps the Reserve Bank poised to cut rates. 

“Still, the stabilisation in home prices works the other way – keeping the Reserve Bank on the sidelines,” James says.