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September, 2018 3:11 AM



Business & jobs conditions at highs

Business & jobs conditions at highs

The NAB business conditions index rose to a record high +20.8 pts in February from a downwardly revised +18.5 points

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13.03.2018 03:40 PM

Business and jobs conditions at record highs
Business survey; Consumer sentiment; Housing finance

Business survey: The NAB business conditions index rose to a record high +20.8 pts in February from a downwardly revised +18.5 points (previously: +18.9 points) in January. The business confidence index fell to +9.2 points in February from a downwardly revised +10.7 points in January (previously: +11.8 points).

Record employment conditions: The NAB employment conditions index rose to a record high +16.4 points in February, up from +6.3 points in January.

Number of home loans: The number of loans (commitments) by home owners (owner-occupiers) fell by 1.1 per cent in January – the fourth fall in five months. Loans are down by 1.9 per cent on the year.

Value of home loans: The value of new housing commitments (owner occupier and investment) rose by 0.7 per cent in January. Owner-occupier loans increased by 0.5 per cent and investment loans rose by 1.1 per cent. The average home loan across Australia stood at $389,000 in January, up by 7.0 per cent on the year.

Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating fell by 2.5 per cent to 116.0. Confidence is up by 3.6 per cent over the year and above the average of 113.6 since 2014 and average of 112.9 since 1990. The business survey has broad implications for investors and the economy. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The home loan data have implications for builders, housing-reliant businesses, finance providers, retailers, and companies dependent on consumer and business spending.

What does it all mean?

The Aussie business sector is going gangbusters. Sure, confidence fell a little in February, but conditions are the best on record. And employment conditions are the best ever too. The record run in jobs gains is set to continue.

And leading indicators of business activity, such as capacity utilisation remain near decade high levels. Forward orders surged to 14-year highs, implying an improving nonmining outlook.

Conditions are strongest in the construction, mining, finance, and property and business services sectors. Activity in the retail sector even picked-up, posting its best reading in eight months. Conditions are strong across all Aussie states.

In a further positive sign that the mining business investment outlook is improving, the mining and construction sectors were the most confident. Western Australia is the most confident state in trend terms.

The Aussie housing market continues to rebalance following the crackdown on interest and investor-only loans by the bank regulator, the Australian Prudential Regulation Authority. Home prices have declined, accentuated by declines in Sydney, where the stock of homes is rising.

Given this backdrop it is unsurprising that housing finance growth is softening. However, there are some bright spots. Falling prices means better affordability. Together with stamp duty concessions by the NSW and Victorian governments, the proportion of first home buyers in the home loan market is back at over 5-year highs.

Consumer sentiment fell last week. But Aussie consumers remain positive. The number of optimists still outweigh the number of pessimists. And why wouldn’t they? Despite much hand wringing about last week’s “weak” national accounts the Aussie economy’s record-breaking run of expansion continues. At last count that’s 106 quarters of growth over 27 years with no recession. And the Reserve Bank expects economic growth to be stronger this year.

What do the figures show?
National Australia Bank Business Survey

The NAB business conditions index rose to a record high +20.8 pts in February from a downwardly revised +18.5 points (previously: +18.9 points) in January. The long-term average is +5.5 points.

The business confidence index fell to +9.2 points in February from a downwardly revised +10.7 points in January (previously: +11.8 points). The long-term average is +6.0 points.

The survey was undertaken from February 16 to 23.

The rolling annual average business conditions index was at a near-decade high of +16.3 points in February.

Components: the index of trading conditions rose from +24.7 points to +26.7 points; employment surged from +6.3 points to a record high +16.4 points; profitability rose from +19.4 points to +20.6 points; forward orders rose to a 14-year high of +11.2 points from +2.8 points.

Inflationary indicators were mixed in February. The monthly reading of labour costs rose at a 1.3 per cent quarterly rate in February after a 0.9 per cent rise in January. Purchase costs rose at a 0.8 per cent quarterly rate in February after a 0.4 per cent increase in January. Final product prices were unchanged, up by 0.4 per cent quarterly rate in February after a 0.4 per cent increase in January. Retail prices rose at a 0.2 per cent quarterly rate in February, down after a 0.4 per cent increase in January.

Capacity utilisation fell to 82.5 per cent in February from 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 to 55 per cent in February from 75 per cent in January.

The NAB said: “The Survey results for February reinforce our views on the outlook for the Australian economy. After last week’s release of below expectation GDP growth data, the strength in business conditions and leading indicators makes us more confident that Australia will see stronger economic growth in coming quarters on the back of LNG exports, and business and government investment. This will sustain strong jobs growth, reduce unemployment, and put gradual upwards pressure on private sector wages. We expect by late 2018 the RBA will feel relaxed enough about the domestic fundamentals to cautiously start withdrawing the stimulatory policy stance it is currently running. However, it will depend heavily on the data flow and the risk is that the RBA will delay rate rises until early 2019”.

Housing finance - number

The number of loans (commitments) by home owners (owner-occupiers) fell by 1.1 per cent in January – the fourth fall in five months. Loans are down by 1.9 per cent on the year.

Excluding refinancing of dwellings, the number of loans rose by 0.5 per cent in January.

Loans by owner-occupiers for the construction of homes increased by 3.1 per cent in January – the strongest gain in six months.

Loans to buy newly-erected dwellings fell by 4.7 per cent in January after declining by 5.4 per cent in December.

Loans for the purchase of established dwellings (excluding refinancing) fell by 1.5 per cent in January after declining by 2.3 per cent in December. 

The number of refinancing transactions rose by 0.3 per cent in January after rising 0.7 per cent in December.

Changes in home loans across the country: NSW (down 1.0 per cent); Victoria (up 0.7 per cent); Queensland (down 0.6 per cent); South Australia (down 2.5 per cent); Western Australia (down 2.8 per cent); Tasmania (down 0.6 per cent); Northern Territory (up 5.3 per cent); ACT (down 1.4 per cent).

Housing finance - value

The value of new housing commitments (owner occupier and investment) rose by 0.7 per cent in January.

Owner-occupier loans increased by 0.5 per cent and investment loans rose by 1.1 per cent.

The value of loans by owner-occupiers and investors to build new homes increased by 1.5 per cent in January to $3.24 billion, up from $3.19 billion in December.

Housing finance – other statistics

The value of cancelled loans rose by 3.8 per cent in January after falling by 2.0 per cent in December.

Commitments actually advanced (loans made) fell by 14.8 per cent in January – the largest decline in 12 months - after lifting by 3.0 per cent in December. 

The proportion of first-time buyers in the home loan market rose back up to 5-year highs of 18.0 per cent in January from 17.9 per cent in December (decade-average 17.8 per cent).

The proportion of fixed rate loans fell from 14.9 per cent in December to 10-month lows of 14.5 per cent in January.

And the average home loan across Australia stood at $389,000 in January, up by 7.0 per cent on the year. 

Consumer Sentiment

The weekly ANZ/Roy Morgan consumer confidence rating fell by 2.5 per cent to 116.0. Confidence is up by 3.6 per cent over the year and above the average of 113.6 since 2014 and average of 112.9 since 1990.

All five components of the index decreased last week:

* The estimate of family finances compared with a year ago was down from +9.3 to +3.3;
* The estimate of family finances over the next year was down from +24.6 to +23.4;
* Economic conditions over the next 12 months was down from +12.9 to +8.9;
* Economic conditions over the next 5 years was down from +13.7 to +11.5;
* The measure of whether it was a good time to buy a major household item was down from +34.4 to +33.1.

The measure of inflation expectations 2 years ahead increased to 4.7 per cent from 4.5 per cent.

What is the importance of the economic data?

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.

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.

Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market. 

What are the implications for interest rates and investors?

Aussie businesses are buoyant. Overall conditions and underlying employment conditions are at record highs.

The NAB survey is complemented by the recent Roy Morgan Business Confidence survey for February. Solid business confidence is being driven primarily by medium and larger Aussie businesses – those with annual turnover of $5 million or more.

The Roy Morgan survey also points to a significant pick-up in Western Australian business confidence. According to Roy Morgan: “Western Australia enjoying its best start to a year since 2013.” The drag from the end of the mining construction boom on business investment and broader economic growth is receding.

The steam continues to be taken out of the Aussie housing market. The rebalancing is continuing and will be welcomed by policymakers focused on financial stability. Residential construction activity remains a support for the market, but dwelling investment and financing for loans is weakening.

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. In fact household consumer spending grew at a firm 1.0 per cent growth rate in the December quarter.

The domestic economic backdrop has not fundamentally changed, despite increasing share market volatility.

Australia has been exempted from the US Administration’s steel and aluminium tariffs.

While inflation remains benign due to modest wages growth and aggressive price discounting in the retail sector, household perceptions of inflation are very different. Rising costs of living - especially on the back of increasing utility bills, petrol prices, health care premiums, rental costs and education fees – are weighing on already stretched household budgets.

Real wages growth is still positive, but only just. Slack in the labour market needs to diminish further and worker productivity lift before we see a sustained increase in workers’ pay. This remains key to the inflation outlook.

CommSec expects interest rates to be unchanged until at least the December quarter.

Published by Ryan Felsman, Senior Economist, CommSec
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