– September 2018 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold again in September and continues to see a gradual move towards achieving its forecasts over the medium term.
- While the cash rate is on hold, mortgage rates are on the rise and we are likely to see further funding pressures ahead.
- Despite higher mortgage rates, the recent data has largely supported the RBA’s central outlook.
- The key to the timing of any rate move will be how the risks to the outlook evolve.
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 was a very interesting set of numbers in July. Total employment fell by 3,900 after the solid bounce in June. Despite the fall the unemployment rate was also lower over the month thanks to a 0.2% fall in the participation rate.
- While the ANZ job ads report remains volatile the trend growth in job ads has slowed and points to a slower pace of employment growth over the months ahead.
- The Business confidence index continues to hover around the long run average, rising from 6 to 7 in July . The pull back in the Business Conditions Index has accelerated after spending 9 months at very strong levels. The index now sits at 12, well down on the 20 level 3 months ago.
- July’s bounce in Consumer confidence was short lived with the index falling 2.3% in August. Expectations around the economy for the short and medium term provided the biggest drag on confidence. Family finances were also softer over the month.
- After a solid Q2, Retail sales started the new quarter on a softer note and were unchanged in July. Ex-food sales were actually 0.25% lower over the month. The annual pace of sales continues to hover just above the pace of wage growth with little scope to accelerate from here.
- Housing finance continues to slide, driven by a pull back in investor appetite. July saw investors lead the fall in total housing credit ex-refinancing while the value of owner occupier loans was also down for the month.
- Australia’s trade balance posted another solid surplus in July at $1.55bln. Australia continues to benefit from elevated commodity prices, especially demand for coal.
- Building approvals resumed their decline in July after the unexpected 6.4% bounce in June. Both single and multi unit developments are now trending lower suggesting construction may come under pressure over the coming months.