– JUNE 2019 INSIGHTS BY THE CURVE TEAM –
- After leaving the cash rate on hold for 33 straight months, the RBA lowered the cash rate to 1.25% at their June meeting.
- Governor Lowe stressed that the decision was not driven by a deterioration in the outlook but rather a revision to their assessment of what constitutes full employment.
- The data, especially employment data, remains the key to the outlook for monetary policy.
- However the RBA stressed that monetary policy cannot do it alone and has called for other policy makers to play their role.
Australian Economic Highlights
- Growth fell short of estimates again in Q1 with the economy only growing by 0.4% as the weakness from the second half of 2018 spilled into the start of 2019. The annual pace of growth slowed further from 2.4% to 1.8% and is likely to undershoot the RBA’s estimate this quarter.
- Inflation came in well below expectations in Q1 with headline CPI flat for the quarter which saw the annual rate fall from 1.8% to 1.3%. The RBA has moved to using the trimmed mean as their preferred measure of core inflation and it increased by 0.3% for the quarter with the annual rate slipping from 1.8% to 1.6%
- The employment data saw another month of solid jobs growth with 28,400 new jobs added. However this month was skewed towards part time jobs. Despite the solid growth, the unemployment rate jumped to 5.2% on another increase in the participation rate.
- The ANZ job ads completely collapsed in May, falling 8.4%, the biggest monthly fall since the GFC. The fall does look like an anomaly and could be associated with the timing of the election. Next month’s data should give a better gauge of the ongoing trend.
- Business confidence appears to have received a much needed boost following the election with the index jumping from 0 to 7. The survey period straddled the election weekend so it is still too early to assess the full impact of the result. Business conditions continued their recent trend with a further deterioration in May, taking the index from 3 to 1. Trading conditions fell heavily while profitability fell below 0 for the first time since the corresponding month 5 years ago.
- Consumer confidence continues to gyrate around the inflection point that separates pessimists and optimists. The index remained fairly stable post election with a 0.6% rise to 101.4.
- After lacklustre first quarter, Retail sales started the second quarter off poorly. Total sales were down 0.1% for April and would have been worse were it not boosted by food sales. There is growing signs that even with confidence holding up ok, households are limited discretionary spending as wage growth remains weak and house prices continue to fall.
- Housing finance remains under pressure, with investors still leading the declines in new approvals. The value of investor finance was down a further 2.2% in April which was somewhat offset by a 1% rise in the value of owner occupier approvals. Interestingly, despite the rise in the value of loans, the number of owner occupier approvals was down 1.1%.
- Australia’s trade surplus continued to hover around the $5bln mark in April. However the latest result was more positive with a solid rise in both exports and imports over the month, with almost all import sectors rising over the month.
- Follow the volatility the previous two months, the downtrend in Building approvals resumed in April. Total approvals were down 4.7% taking the annual decline to 24.2%. Total building approvals are now down almost 40% from their late 2017 peak.