Daily Commentary BY THE CURVE TEAM –

Data Nose Dive Continues

5th of May, 2020

Incoming data continues to show the scale of the impact being experienced from the virus containment measures.

The last 24 hours has seen a wave of local data releases with is exposing the significance of the economic impact the virus fight has had. While it makes for sobering reading, it will be some time before the true extend of the damage is revealed with many data points still predating the peak of the containment measures.

For example, building approvals data revealed that new approvals were already falling before the peak of the containment measures kicked in. Total approvals were down 4% with private housing approvals down 1.2%. With an overhang of supply expected to build over the month ahead, we could see new building approvals remain weak for some time.

Activity within the construction industry has already been heavily impacted. The performance of construction PMI fell to 37.9 in March before hitting the lowest level the index has seen since its inception in the mid 2000’s in April. The index now sits at 21.9 suggesting activity has contracted at its fastest pace on record. The new orders index was particularly low at 15.7, a new low which doesn’t bode well for the outlook.

The outlook for employment is also looking dour with the ANZ jobs ads report falling 53.1% in April, almost 5 times the next biggest monthly fall. The number of jobs ads is now lower than anytime going back to the 1990s and around a quarter of the jobs advertised prior to the GFC.

Yesterday, we also saw the first sign of falling prices that the RBA has flagged for the months ahead. The monthly inflation index fell 0.1% in April taking the annual rate down to 1.2%. It is expected that we will see CPI fall deep into negative territory with the real prospect of outright deflation. The RBA will be hoping that the fall in prices is transitory and that is doesn’t become engrained in expectations which would have widespread effects on consumer behaviour.

We will hear more from the RBA today when they meet to discuss monetary policy. While no change to the stance of monetary policy is expected, the market will be keenly awaiting their comments. They are expected to give more details on the outlook and specifically the update to the forecasts which will be released as part of their Quarterly Statement on Monetary Policy on Friday.

David Flanagan

Director - Interest Rate Markets