Daily Commentary BY THE CURVE TEAM –

Data Updates Largely Positive for Economy

10th of September, 2020

Yesterday’s data updates saw consumer sentiment and housing finance approvals grow strongly, while retail sales are forecast to fall in August.

Consumer sentiment has swung wildly throughout the Covid-19 pandemic, as lockdown measures have constantly been adjusted. After a fall of 9.5% last month, sentiment rose 18% to 93.8 for September.

This largely reflects the reduction of Covid-19 cases in Victoria and the containment of cases outside Victoria. The noteworthy mover in the index was the expectation for economic conditions over the next 12 months, up 41% to 75.6.

Despite the improvements, the index remains below long run averages, which means consumers remain largely pessimistic. Without further unwinding of Covid-19 restrictions or government stimulus it is difficult to see where further improvements will come from.

In a surprising update, housing finance approvals continue to be strong despite the economy being in a recession for the first two quarters of 2020. Total housing finance approvals were expected to rise 2% for July, instead they rose 8.9% for the month. Excluding refinancing, it leaves the total value of housing finance approvals 11.8% above last year.

Owner occupied has led the way, rising another 10.7% in July and sitting 18.5% higher than last year. Investor loans meanwhile were up 3.5% for the month but down 5.1% from last year. Victoria continues to be the laggard, with much slower growth while the state imposed stage 3 lockdowns.

The value of refinancing activity fell 11.1% over July but is 21.1% higher than last year. This reflects the record low interest rates set by the RBA and the cheap liquidity being provided to ADIs by the RBA.

It has driven many fixed home loans well under 3% while variable rates remain above 3%. Low rates and growing approvals will put upward pressure on house prices, but opposing these pressure will be a struggling economy and lack of population growth.

A bright spot of the economy during the Covid-19 pandemic has been retail sales. Preliminary forecasts for the August data suggests a fall of 2.4% for the month.

This will leave retail sales well above last year’s level. However, with JobSeeker and JobKeeper amendments to kick in starting October there is every chance retail sales will revert to usual levels. This would remove one of the few tailwinds for economic activity.

Josh Stewart

Client Relationship Manager