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Leases rise to 16½ year highs

Leases rise to 16½ year highs

The NAB business conditions index rose from +12.8 points to +18.9 points in January ? the fourth best monthly outcome on record.

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13.02.2018 04:07 PM

Lease loans rise to 16½-year highs
Business survey; Consumer sentiment; Lending finance

Business survey: The NAB business conditions index rose from +12.8 points to +18.9 points in January – the fourth best monthly outcome on record. The business confidence index rose from a downwardly revised +9.6 points (previously: +11.1 points) to +11.8 points – the highest level in 9 months.

Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating fell by 2.6 per cent last week. Elevated share market volatility weighed on sentiment towards the economic outlook.

Lending finance: Total new lending commitments (housing, personal, commercial and lease finance) fell by 4.4 per cent in December. However, lease loans rose to 16½-year highs in rolling annual dollar terms. 

What does it all mean?

Aussies still maintain a conservative attitude towards taking on more debt. However, lease loans have risen to 16½-year highs. Car prices are at 30-year lows and car sales are at record highs. Aussies appear to be taking advantage of cheap cars, potential tax benefits and flexible payment terms to lease new vehicles (or equipment).

Aussie businesses are booming. In fact conditions are near the best on record. Corporate profits and trading conditions are elevated.

Capacity utilisation is at 9½-year highs, implying that non-mining investment will strengthen further this year. In order to address capacity issues, businesses will need to hire more workers.

In further good news, strong business conditions are broad-based across all Aussie states and territories, led by Tasmania.

The construction sector recorded a strong reading, despite recent concerns over the cooling in the east coast housing market. Infrastructure and residential construction still remain elevated.

And the drag from the end of the mining construction boom has receded further with mining sector conditions amongst the strongest.

Global share markets tumbled last week posting the worst weekly returns in more than two years as investors fretted about rising inflation and interest rates in the United States.

Market turbulence unnerved Aussie consumers, weighing on sentiment towards current economic conditions. The subindex fell by 6 per cent after rising by 8.3 per cent cumulatively over the previous two weeks to 7-year highs.

The Aussie economy is in good shape despite recent financial market volatility. Robust business investment and government-led infrastructure spending are driving economic and jobs growth. 

What do the figures show?
National Australia Bank Business Survey

The NAB business conditions index rose from +12.8 points to +18.9 points in January – the fourth best monthly outcome on record (long-term average +5.4 points).

The business confidence index rose from a downwardlyrevised +9.6 points (previously: +11.1 points) to +11.8 points – the highest level in 9 months (long-term average +5.9 points).

The survey was undertaken from January 24 to 31.

The rolling annual average business conditions index was at a 9½-year high of +15.4 points in January.

Components: the index of trading conditions rose from +17.9 points to +25.8 points; employment eased from +6.2 points to +6.0 points; profitability rose from +14.4 points to +22.7 points; forward orders fell from +4.3 points to +2.7 points.

Inflationary indicators were mixed in January. The monthly reading of labour costs rose at a 0.9 per cent quarterly rate in January after a 0.8 per cent rise in December. Purchase costs rose at a 0.4 per cent quarterly rate in January after a 0.5 per cent increase in December. Final product prices were up by 0.3 per cent in January, after a 0.4 per cent increase in December. Retail prices rose at a 0.4 per cent quarterly rate in January after a 0.4 per cent decrease in December.

Capacity utilisation lifted from 82.3 per cent to 82.7 per cent in January, above the long-term average of 81.1.

The proportion of firms reporting that they did not require credit fell from 80 per cent in December to 75 per cent in January. NAB said: “The Survey results for January are broadly in line with our view of the Australian economy. We are hopeful that Australia will see stronger economic growth in coming quarters, due to the strength in the labour market, business activity and infrastructure spending, despite the challenge of only modest consumption growth and the peaking in LNG exports and housing construction. This would probably prompt the RBA to consider a gradual removal of emergency policy stimulus, as long as there are signs of wages strengthening. We still expect the first RBA hike to come in the second half of this year if unemployment falls further and wages show improvement, although the risk is that the RBA will move later as it has indicated that it is in no rush to lift rates”.

Consumer Sentiment

The weekly ANZ/Roy Morgan consumer confidence rating fell by 2.6 per cent to 119.5. Confidence is up by 5.1 per cent over the year and well above the average of 113.5 since 2014 and average of 112.9 since 1990.

All five components of the index fell in the latest week:

- The estimate of family finances compared with a year ago was down from +8.7 to +5.9;
- The estimate of family finances over the next year was down from +27.5 to +25.2;
- Economic conditions over the next 12 months was down from +20.4 to +13.2;
- Economic conditions over the next 5 years was down from +17.3 to +16.5;
- The measure of whether it was a good time to buy a major household item was down from +39.5 to +36.9.

The measure of inflation expectations 2 years ahead rose from 4.2 per cent to 4.4 per cent.

Lending Finance

Total new lending commitments (housing, personal, commercial and lease finance) fell by 4.4 per cent in December to $70.8 billion, after the largest rise in almost 3-years in November.

In trend terms, lending rose for the third straight month, up by 0.1 per cent in December.

Personal finance commitments fell by 4.9 per cent in December – the second consecutive monthly decline after 6 consecutive months of increases. Fixed lending fell by 3.9 per cent. Revolving credit was down by 6.8 per cent. Personal loans are still down 14.1 per cent on a year ago.

Within fixed lending, loans to buy blocks of land was near record highs at $8.04 billion for the year to December.

All housing finance fell by 1.0 per cent in December with construction and purchases down 1.0 per cent. Alterations and additions rose by 0.3 per cent and were up 6.2 per cent over the year. All housing finance is up 4.4 per cent over the year.

Commercial finance fell by 6.1 per cent in December after rising by 14.7 per cent in the previous month. Within commercial commitments, fixed lending fell by 11 per cent while revolving credit rose by 14.3 per cent. Commercial loans are up by 0.8 per cent on a year ago.

Lease finance rose by 8.3 per cent in December after a decline of 7.6 per cent in November to stand 10.5 per cent higher over the year.

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 monthly National Australia Bank business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.

Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.

What are the implications for interest rates and investors?

Strength in business conditions is now finally translating into increased confidence. Conditions are at near-decade highs. Increasing capacity constraints and rising hiring intentions point to a gradual lift in wages and inflation.

Consumer confidence has improved since bottoming in August last year. Sentiment was at 4 year highs at the beginning of the year on the back of strong jobs gains and record low interest rates. The economic backdrop has not fundamentally changed despite recent share market volatility.

CommSec doesn’t expect a change in interest rates until at least late 2018.

Originally published by Ryan Felsman, Senior Economist, CommSec
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