The Bull

Tuesday 22

May, 2018 6:36 AM



Bumper trade surplus

Bumper trade surplus

The trade surplus rose by $178 million to $1,527 million in March. Net exports are expected to add 0.6 percentage points to March quarter economic growth.

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03.05.2018 04:10 PM

Record building approvals; Bumper trade surplus
International trade; Services gauge; New vehicle sales; Building approvals

Trade surplus: The trade surplus rose by $178 million to $1,527 million in March. Net exports are expected to add 0.6 percentage points to March quarter economic growth.

New vehicle sales: According to the Federal Chamber of Automotive Industries (FCAI), new vehicle sales eased from a record high of 1,201,309 units in the year to March, to 1,201,134 in the year to April.

Services gauge: The CBA Purchasing Managers Index (PMI) for the services sector eased from 55.6 points in March to 54.2 in April. Readings over 50 signify services sector expansion.

Building: Council approvals to build new homes rose by 2.6 per cent in March after falling 4.2 per cent in February. Over the year to March, the value of building approvals hit a record high of $126.4 billion 

What does it all mean?

The construction sector is refusing to slow down. Over the year to March, council approvals to build new homes or commercial buildings hit a record high of $126.4 billion. The building pipeline is already choc-a-bloc, but it continues to expand. And this is before infrastructure projects are added to the total.

Construction companies are already claiming they can’t find the staff they need. There will be upward pressure on wages. The question is how much of the wage pressure will spill over to other areas.

The new vehicle market is healthy, highlighting strong business conditions and the increasing affordability of new vehicles. Businesses dependent on a healthy vehicle sector have good prospects.

Income from tourism, gold and liquefied petroleum gas (LPG) all underpinned another bumper trade surplus. Companies are making more money on overseas sales which has to be good for spending and employment.

What do the figures show?

International trade:

A trade surplus of $1,527 million was posted in March, rising from a revised $1,349 million surplus (previously reported as a surplus of $825 million) in February. The rolling annual surplus narrowed from $7.45 billion to $7.38 billion.

The net services deficit narrowed from $284 million to $199 million.

Exports of goods and services rose by 1.4 per cent in March (goods rose by 1.6 per cent).

Imports of goods and services rose by 0.9 per cent (goods up by 1.4 per cent).

Exports were up by 4.3 per cent on a year ago, while imports are up 7.5 per cent.

Rural exports rose by 3.3 per cent in March after increasing by 14.2 per cent in February. Non-rural goods rose 0.9 per cent and gold exports increased by 7.7 per cent after a 23 per cent fall in February and 53.9 per cent decline in January.

Within imports, consumer imports fell by 2.2 per cent in March with capital goods imports down by 1 per cent, but intermediate goods imports rose by 3.8 per cent.

Consumption goods imports were up by 3.5 per cent on a year ago while capital goods imports were up by 7.2 per cent and intermediate goods imports were up by 11.5 per cent.

Australia's annual exports to China fell from US$99.84 billion in February to US$99.41 billion in March. Exports to China are up 9.4 per cent on a year ago – the slowest annual growth rate in 15 months. Exports to China account for 32.8 per cent of Australia's total exports.

Australia's annual imports from China fell from US$65.36 billion in February to US$64.97 billion in March. Annual imports were up by 8.3 per cent on a year ago. Imports from China accounted for 22 per cent of Australia's total imports.

Australia's rolling annual trade surplus with China fell from $34.48 billion in February to $34.45 billion in March – the fifth straight fall.

New vehicle sales

According to the Federal Chamber of Automotive Industries (FCAI), there were 82,930 new vehicle sales in April, down 0.2 per cent over the year. In the twelve months to April, sales totalled 1,201,134 units, down from the record high in March but up 2.9 per cent on a year ago.

The FCAI reported: “The April 2018 market of 82,930 new vehicle sales is a decrease of 205 vehicle sales or -0.2 per cent on April 2017 (83,135) vehicle sales. April 2018 (23) had one more selling day than April 2017 and this resulted in a decrease of 173.2 vehicle sales per day.”

The Passenger Vehicle Market is down by 4,614 vehicle sales (-14.4 per cent) over the same month last year; the Sports Utility Market is up by 4,791 vehicle sales (15.3 per cent); the Light Commercial Market is down by 1,016 vehicle sales (-5.9 per cent); and the Heavy Commercial Vehicle Market is up by 634 vehicle sales (25.2 per cent) versus April 2017.”

“SUV sales to private and business customers showed strong April gains, up 15.3 per cent and 17.5 per cent respectively. Private light commercial sales dipped by 13.6 per cent, while light commercial business sales fell 3.6 per cent during April.”

States/Territories: NSW sales 26,986 (down 5.5 per cent on a year ago); Victoria 23,770 (+2.1 per cent); Queensland 16,621 (+1.9 per cent); South Australia 5,126 (+3.5 per cent); Western Australia 7,119 (+7.3 per cent); NT 885 (-2.7 per cent); ACT 1,234 (-1.8 per cent). CBA Purchasing Managers Index for Services

The CBA Purchasing Manager’s Index (PMI) for the services sector fell from 55.6 points in March to 55.2 in April. Readings above 50 signal expansion of the services sector.

The CBA said: “Strong growth in business is supporting jobs growth. But it is also allowing services firms to pass on some of the impact of rising input prices. Survey respondents are still highlighting the impact of higher energy costs. And they are reporting that wages bills are lifting as workforces expand and pay levels lift.”

Building Approvals:

Council approvals to build new homes rose by 2.6 per cent in March after falling 4.2 per cent in February. House approvals rose by 1.0 per cent to 3-year highs. Apartment approvals rose by 4.6 per cent. 

In trend terms, approvals rose by 0.2 per cent, the fourth straight rise.

Over the past year 226,725 new homes were approved – a 12-month high but down from the record high of 242,829 in the year to August 2016.

Dwelling approvals across states/territories in March: NSW (-12.0 per cent); Victoria (+7.3 per cent); Queensland (-0.8 per cent); South Australia (-2.7 per cent); Western Australia (-2.9 per cent); Tasmania (-4.3 per cent). Trend terms: Northern Territory (+5.3 per cent); ACT (+28.0 per cent).

The value of all commercial and residential building approvals fell by 0.8 per cent in March but they were still up by 12.4 per cent on the year. Residential approvals fell by 6.3 per cent with new building up by 2.4 per cent and alterations & additions down by 6.3 per cent. Commercial building fell by 4.6 per cent in March after rising by 22.4 per cent in February.

Over the year to March, building approvals hit a record high of $126.4 billion. Annual commercial building approvals stand at a record high of $48 billion.

What is the importance of the economic data?

The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.

CBA and AiGroup compile purchasing manager indexes (PMIs) services and manufacturing are released each month. The Australian PMIs are the local equivalents of similar indexes released for other countries. The PMIs are amongst timeliest economic indicators released in Australia. The PMIs are useful not just in showing how the sectors are performing but in providing some sense about where they are heading. The key ‘forward looking’ components are orders and employment.

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.

What are the implications for interest rates and investors?

The construction sector will be a key driver of the economy in 2018/19 together with exports. The Reserve Bank is hoping for economic growth near 3 per cent in both 2018 and 2019 and today’s data supports this view.

The value of exports of goods and services are at record highs. The services sector is going gangbusters. Record numbers of Chinese, American and Indian tourists are heading ‘down under’. The value of tourism-related services increased by $47 million to $521 million in March.

CommSec expects no change to official interest rates until at least the December quarter. But the extremely slow lift in wage and price growth suggests the first rate hike in the new cycle won’t appear before February 2019.

Published by Craig James, Chief Economist, CommSec
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