– May 2021 INSIGHTS BY THE CURVE TEAM –
- Economic indicators suggest the economic resurgence continues, which will quell the impact of the end of JobKeeper and HomeBuilder.
- Employment numbers indicate employers have transitioned the bulk of workers receiving JobKeeper either into part time work or have let them go.
- Investor activity should keep housing related activity strong.
- The RBA updated their economic forecasts in the Statement on Monetary Policy for May.
- While the employment forecast was significantly improved, the upgrades to growth and inflation were more muted.
Australian Economic Highlights
- Growth in Australia continues to rebound into the end of the year positing a second consecutive increase above 3% in the Q4. The recovery in growth continues to be driven by consumption, which was also the hardest hit component of growth during the Covid downturn. GDP is expected to return to pre-Covid levels by the middle of the year and grow by 3 ½ per cent in 2021 and 2022.
- Inflation underwhelmed in Q1, up only 0.6% when 0.9% was expected. It leaves the annual rate at 1.1%, which will spike next quarter as the drop over Q2 last year induced by Covid is removed from the annual figure. HomeBuilder grants over Q1 contributed to subdued Q1 prices and is expected to wane on the index for some time as grants are received as projects begin.
- March employment numbers seemed to be heavily impacted by the end of JobKeeper. Employment overall was still strong, with 35 000 jobs added. However, in contrast to recent months, the gains were driven by part time employment, which was up over 91 000 jobs. Full time jobs on the other hand were down 20 000. It seems that employers, in anticipation of the end of JobKeeper, shed part of their staff but also kept a lot on in part time work. Those working zero hours but still employed fell to 61 000 from 107 000, which leaves it just above pre-Covid levels.
- ANZ Job ads rose for an eleventh straight month, up 4.7% in April. This leaves them significantly higher than pre Covid levels at 27.8% above last year. Job ads are a leading variable for employment, so will be relevant to seeing whether the RBA’s revised employment forecasts are likely to under or overshoot.
- Business confidence and conditions for April broke the new records from March. Conditions are at 32 from 24 in March and confidence is at 26 up from 17 in March, which is staggeringly high. The employment index again improved, up to 22, which bodes well for minimising the impact of the end of JobKeeper. Evidence of prices increasing remains minimal though.
- Consumer confidence continues to defy expectations, up 6.2% to 118.8, which is the highest level in eleven years. The unemployment index did rise though, which may be due to the end of JobKeeper. Time to buy a dwelling was also down 7.9%, which likely reflects the recent run up in house prices.
- Retail sales remain strong, up another 1.3% over March. This leaves them still at elevated levels compared to pre Covid.
- Housing finance approvals recovered over March, up 5.5% after a fall of 0.4% in February. Investor loans again led the gains, up 12.7%, the highest in 18 years. Investor loans are now up 54.3% on last year and owner occupied up 55.6%. Investor led growth in new loans may offset the impact of the end of HomeBuilder grants.
- Australia’s trade surplus declined for a second consecutive month, down by $2 billion to $5.6 billion. Imports were up 4.3%, with the Easter period seemingly spurring demand. Exports on the other hand were down 1.7%. Gold exports were down 25% and coal down 11%, with the latter affected by flooding in NSW.
- The end of the HomeBuilder contributed to a 17.4% rise in dwelling approvals for March. Detached houses, which have led the high approval rates, were up only 0.1%, whereas unit approvals were up an astounding 63.6%. Sharp falls should be expected now HomeBuilder has ended.