– OCTOBER 2018 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold again in October and continues to see a gradual move towards achieving its forecasts over the medium term.
- Falling house prices are yet to impact consumption or employment, but as price falls continue the pressure will build.
- The FOMC lifted rates again last month with the divergence of US Monetary policy with the rest of the globe gathering pace.
- Overall Australia’s economy continues to hold up well in the face of growing headwinds both domestically and offshore.
Australian Economic Highlights
- Growth remained strong for the second straight quarter with the economy growing 0.9%. Upward revisions to the prior three quarters helped lift the annual rate to 3.4%.
- CPI was as expected in Q2 with headline inflation up 0.4% while core inflation increased 0.5%. The annual rate of headline inflation edged back into the RBA’s target band at 2.1% while the core annual rate was unchanged at 1.9%.
- The Employment data continues to post interesting outcomes. After the strange numbers last month, August saw total employment growth bounce back, jumping 44,000. Despite the bounce, the unemployment rate was little changed as the participation rate also jumped 0.2%.
- After a run of volatile months, the ANZ job ads posted back to back declines in August and September. The 0.7% fall in August was followed by a 0.8% fall in September. Ads are still up 4.7% compared to a year ago.
- The Business confidence index stabilised in September after softening in recent months and sits around its long run average. The Business Conditions Index remained stable at elevated levels with an improvement in the employment index offsetting slightly weaker trading conditions. One thing to keep an eye on is renewed deterioration in retail sector conditions.
- Consumer confidence fell for the second straight month in September with the 3% drop adding to the 2.3% fall the previous month. Long term economic expectations suffered the biggest fall while family finances are a significant ongoing concern for consumers.
- Retail sales picked up in August, rising 0.3% after starting the quarter unchanged in July. Food was flat for the month meaning the lift was driven by discretionary spending which is encouraging. Slow wage growth and falling house prices are likely to weigh on consumption over the months ahead.
- Investors continue to drive the slowdown in Housing finance which is down over 5% compared to a year ago. Stripping out refinancing from the data shows growth in owner occupier finance is down to 1% over the past year with total finance down 8.1%.
- Australia’s trade balance continues to be a pillar of strength with another solid surplus recorded in August at $1.6bln. Australia continues to benefit from elevated commodity prices, especially demand for coal, while LNG is also boosting exports.
- Building approvals collapsed in August posting a one month fall of 9.4% with approvals now down 27% from their late 2017 peak. The building approvals data along with the sharp fall in the construction PMI suggest the peak in construction on the back of the house price boom is now well behind us.