Daily Commentary BY THE CURVE TEAM –

Economy Reopening Boosts Loan Approvals

6th of August, 2020

As the Australian economy continued to reopen during June we saw some signs on life in home loan approvals.

In May we saw housing finance approvals fell 11.6% with housing acticity struggling due to social distancing restrictions. This rebounded 6.2% for June, leaving the amount still 10% below pre-covid levels. Both owner occupied and investor approvals went up.

The measure does not translate to any economic activity, but reflects the ability and willingness of people to seek a home loan. Should economic conditions hold up it would be expected that these approvals for loans would translate into actual loans.

Refinancing activity eased back in June after surging 45% the previous two months. This will not increase aggregate credit in the economy but should reduce the debt burdens for those with loans.

Overnight in the US the ISM Services index rose to 58.1, indicating that activity and new orders were rising. Contrasting this overall read was the employment index, which remains low at 42.1. A relatively jobless recovery is a phenomena we are seeing play out both offshore and domestically.

This dichotomy of activity and employment will be monitored closely by policymakers. The sharp contraction in economic activity induced by Covid-19 in a lot of instances forced employers to lay off workers, especially in the US where there was no Jobkeeper wage subsidy like Australia.

As the economy recovers, businesses may choose to not hire as many people as they had previously even if output returns to pre Covid levels. Although this will be good for businesses cost, it could leave a large hole in the labour market.

It will be a quiet day of data locally before the RBA release their latest quarterly Statement on Monetary Policy  tomorrow.

Josh Stewart

Client Relationship Manager