Exports to lift growth, record building approvals: CommSec's Craig James

Exports to lift growth, record building approvals: CommSec's Craig James
Exports to lift growth, record building approvals: CommSec's Craig James

GUEST OBSERVER 

Dwelling approvals: Dwelling approvals rose by 3.9 % in October, boosted by a 10.6 % increase in apartment approvals. Over the past year a record 233,180 new homes were approved.

The terms of trade (ratio of export to import prices) fell by 2.4 % to a 9-year low of 83.3 in the September quarter. But the terms of trade is still up 4 % on the 20-year average.

Record foreign debt: Net foreign debt rose by $25.5 billion to a record $993.8 billion as at the end of the September quarter.

Trade sector adds to economic growth: Net exports (exports less imports) will add 1.5 percentage points to economic growth in the September quarter. CommSec estimates that the economy grew by 0.9 % in the September quarter to be up 2.5 % over the year.

China purchasing manager indexes: The National Bureau of Statistics measure for manufacturing fell from 49.8 to 49.6 in November; the services index lifted from 53.1 to 53.6.

What does it all mean?

Courtesy of stronger demand for our exports, we expect the economy grew by almost 1.0 % in the September quarter. Last quarter media were comparing Australia to Greece after the economy grew by just 0.2 %. Will we see media comparing our economy with India or China if the economy grows as expected in the September quarter?

We can never become too complacent with our foreign debt position. In the past quarter our debt levels rose to almost $1 trillion dollars – not an event we should celebrate. The good news is that Australians are also investing overseas with latest data at record highs.

Dwelling approvals lifted by healthy 3.9 % October. From a longer term sense the lift in home building over the past couple of years has been extraordinary. Over the past year a record 233,180 new homes were approved – a boom that will continue to support economic activity over the next 12-18 months. Interestingly with the tightening in bank lending standards, it is pretty clear that the lift in supply should result in a much more balanced housing sector - as was highlighted by the pullback in home prices in five of the eight capital cities last month.

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Exports to lift growth, record building approvals: CommSec's Craig James

What do the figures show?

 Building Approvals:

Dwelling approvals rose by 3.9% in October after rising 2.3% in September.  Over the past year a record 233,180 new homes were approved.

House approvals fell by 2.1% in October (private sector fell by 2.1%). Meanwhile ‘lumpy’ apartment approvals rose by 10.6% in October after rising by 7.5% in September. Private sector apartment approvals rose by 10.6% in October.

Dwelling approvals are up 12.3% on a year ago with house approvals down by 2.3% while apartments are up by 30.2%.

Across states and territories in October: NSW approvals rose by 22.0%; Victoria rose by 21.2%; Queensland fell by 28.7%; South Australia rose by 23.4%; Western Australia fell by 1.1%; Tasmania fell by 41.6%. In trend terms, approvals rose by 7.1% in the Northern Territory and fell 10.8% in the ACT.

The value of all commercial and residential building approvals rose by 6.4% in October after falling by 2.7% in September. Residential approvals rose by 9.8% with new building up by 10.5% while alterations & additions rose by 3.7%. Commercial building fell by 1% in October to be up 19.6% over the year.

 Balance of Payments

The broadest measure of Australia's external position -  the current account – improved in the September quarter (smaller deficit), with the deficit falling from $20,506 million to $18,104 million.

The balance of goods and services was in deficit by $7,438 million after a $10,946 million deficit in the June quarter. Exports rose in real terms by 5.4% while imports fell by 1.8%.

At the end of the June quarter,  net foreign equity was $70.99 billion – essentially Australians own more assets overseas than foreign investors own here in Australia. And the positive net foreign equity position rose by $7.37 billion over the September quarter.

The trade sector (exports less imports) will add 1.5 percentage points to economic growth in the September quarter.

Terms of trade (ratio of export to import prices) fell by 2.4% to 83.3 in the September quarter – lowest level since June quarter 2006. But the terms of trade is still up 4.0% on the 20-year average.

Net foreign debt rose by $25.5 billion to a record $993.8 billion as at the end of the September quarter.

The debt servicing ratio (net income on foreign debt to goods and services credits) worsened from 7.4% to 7.7% in the September quarter.

 Government Finances

Government consumption spending rose by 0.7% in the September quarter after a 1.7% increase in the June quarter. But total public investment fell by 9.2% in the September quarter after rising by 2.1% in the June quarter. Overall, spending by the government sector  fell by 1.2% in the September quarter after rising 1.8% in the June quarter.

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Exports to lift growth, record building approvals: CommSec's Craig James

 

 Consumer sentiment

The weekly ANZ/Roy Morgan consumer confidence rating fell by 1.7 points (1.5%) to 112.8 in the week to November 29 Confidence is down 1.0% over the year but above the average of 111.7 since 2014.

Just two of the five components of the index rose in the latest week:

The estimate of family finances compared with a year ago was  down from +9 to +4;

The estimate of family finances over the next year was  up from +23 to +25;

Economic conditions over the next 12 months was  down from +2 to -2;

Economic conditions over the next 5 years was  down from +10 to +6;

The measure of whether it was a good time to buy a major household item was  up from +28 to +31.

What is the importance of the economic data?

The Bureau of Statistics' monthly  Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops.

Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity.

An increase in approvals would point to stronger future activity for construction-related companies.

The quarterly Balance of Payments figures have few short-term effects on financial markets. The importance of the data is merely to highlight Australia’s trading position with the rest of the world as well as the contribution of foreign trade (exports less imports) to the latest estimates of economic growth.

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.

What are the implications for interest rates and investors?

The near $1 trillion in foreign debt will serve as a brake on the Aussie dollar, which at present seems a little high compared with the level of commodity prices.

A solid reading on economic growth in the September quarter will ensure that the Reserve Bank stays on the interest rate sidelines.

 

Craig James is the chief economist at CommSec.

Michael Crawford

Michael Crawford

Michael is the real estate reporter for western Sydney and loves writing about homes and the people who live in them. A former production editor and news journalist, he enjoys writing about real-world property purchases as well as aspirational buys and builds. Following a recent move from Sydney’s northern beaches, Michael now actually enjoys commuting.

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