Daily Commentary BY THE CURVE TEAM –

Domestic Data Continues to Deteriorate

5th of March, 2019

It was hard to find any positives yesterday in both the monthly data and GDP partial indicators that were released.

The GDP partial indicators releases yesterday were weak to say the least with economists forces to further lower their expectations for tomorrow’s final GDP figure.

Inventories fell for the quarter, dropping 0.2% against expectations of a 0.3% increase and as a result won’t add to growth as was previously expected. Company operating profits were also weaker than expected and could of been a whole lot worse were it not for mining profits. Wages growth for the quarter was also weak.

We get the final partials today and if the trend holds, we could be set for a low or maybe even negative result come 11:30 tomorrow. The one saving grace could be services spending which we only get to see in the national accounts as no monthly or partial data is available.

While services spending is the one great hope to prop up GDP for the quarter, the latest monthly data suggests it will do little to help in the current quarter. The service sector PMI released this morning remained firmly in contractionary territory. New orders were particularly weak while activity at retailers fell at its fastest pace since 2012.

The other monthly data released yesterday was also pointed to a weaker outlook. While the monthly inflation index remained weak with the 0.1% rise leaving the annual rate still well below the RBA’s target band at 1.7%, it is the Job ads report which was the bigger concerns.

Job ads continue to fall in a sign that the labour market is starting to run out of puff. The strength of the labour market has been the key element underpinning the RBA’s outlook. However the relationship between job ads and the unemployment rate doesn’t bode well for the outlook.

It makes today’s RBA meeting very interesting. Growth clearly slowed and is likely to miss the RBA’s forecasts when it is released tomorrow. There is also a good chance that Australia is already in a recession on a per capita basis.

At their most recent update, the RBA acknowledged that the risks to the outlook are more balances. The market still isn’t expecting a move at this meeting. However, with the risks to the downside growing, it will be interesting to see what the RBA has to say about the outlook when they released their decision and accompanying statement at 2:30 today.

David Flanagan

Director - Interest Rate Markets