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Building approvals at record highsBuilding approvals; Consumer sentiment; Job advertisements
Dwelling approvals: Approvals by local councils to build new homes rose by 11.7 per cent in November after falling by 0.1 per cent in October. It was the strongest monthly outcome in 12 months. In trend terms, approvals rose for the tenth straight month, up by 0.9 per cent.
Record value of dwelling approvals: The total value of dwelling approvals rose by 14.8 per cent to $7.7 billion in November – a new record high.
Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating rose by 4.7 per cent to 122.0 last week – the highest level in four years and well above the long-run monthly average of 112.9.
Job advertisements: Job advertisements declined in December, falling by 2.3 per cent to 167,656 ads, after rising by 1.1 per cent in November. Job ads are up a healthy 10.8 per cent on a year ago.
What does it all mean?
New council building approvals rebounded in November, jumping by 11.7 per cent to 21,055, the third largest monthly total on record. The total value of dwelling approvals was $7.7 billion – a new record high. Growth was particularly strong in Victoria with approvals up by 37.9 per cent in November, following a gain of 20.5 per cent in October. Greater Melbourne apartment approvals rose by 81.3 per cent to 6,287 in November, up from 3,467 in October. Strong population growth, low interest rates and strong employment growth continues to drive demand for new homes and apartments in Australia’s second most populous state.
Of course, questions will be asked whether these approvals will convert into actual building starts, especially given the recent cooling in Sydney and Melbourne home prices. However, an impressive pipeline of projects are expected to be built, such as the 65-floor and 632 residential apartment tower, UNO, in Beckett Street, Melbourne which is due for completion in late 2021.
Aussie consumers began the New Year in a buoyant mood. Strong jobs growth, record low interest rates, a rising Aussie dollar (up 2.2 per cent over the survey period) and strong superannuation fund returns continue to be key drivers of confidence around the economic outlook.
The estimate of current economic conditions rose to the highest level since September 2013, offsetting persistent consumer negativity around anaemic wages growth, moderating home prices, elevated mortgage debt, rising petrol prices and soaring utility bills.
Retail trade data will be released on Thursday for the month of November. While today’s release will have little bearing on this backward-looking indicator, Aussie retailers will be encouraged by the more positive survey response on the ‘time to buy a household item’. Sentiment rose to the highest level since July, rebounding by 4.4 per cent from the previous release.
Interestingly, the measure of inflation expectations 2 years ahead fell to 4.3 per cent from 4.6 per cent. Aggressive department store discounting through the Christmas and New Year sales period would have influenced this outcome. The national average of Australian retail petrol prices fell by 6.5 cents per litre over the survey period too.
The Aussie labour market is strong and the latest job ads data, while a little weaker, suggest it will stay that way. The unemployment rate is at 4½-year lows of 5.4 per cent with 383,300 jobs added over the year to November. Job ads have now risen in five of the last seven months.
What do the figures show?
Building Approvals:
Dwelling approvals rose by 11.7 per cent in November after falling by 0.1 per cent in October. In trend terms, approvals rose for the tenth straight month, up by 0.9 per cent.
The total value of dwelling approvals rose by 14.8 per cent to $7.7 billion in November – a new record high.
Over the past year 222,129 new homes were approved, down 5.8 per cent on a year ago.
House approvals fell by 2.8 per cent in November after rising by 1.4 per cent in October and 0.9 per cent in September. Meanwhile apartment approvals rose by 28.7 per cent in November after declining by 1.9 per cent in October. Apartment approvals remain volatile but this was the strongest monthly result in 4 years.
Dwelling approvals across states/territories in November: NSW (-2.3 per cent); Victoria (+37.9 per cent); Queensland (-2.4 per cent); South Australia (-3.0 per cent); Western Australia (+3.9 per cent); Tasmania (+10.6 per cent). Trend terms: Northern Territory (-3.2 per cent); ACT (-21.8 per cent).
The value of all commercial and residential building approvals rose by 9.4 per cent in November. Residential approvals rose by 14.8 per cent with new building up by 17.2 per cent while alterations & additions fell by 3.5 per cent. Commercial building rose by 0.5 per cent.
Consumer sentiment
The weekly ANZ/Roy Morgan consumer confidence rating rose by 4.7 per cent to 122.0 – the highest level in four years. It was the fifth gain in seven weeks. Confidence is up by 2.3 per cent over the year and well above the average of 113.3 since 2014 and average of 112.9 since 1990.
All five components of the index rose in the latest week:
The estimate of family finances compared with a year ago was up from +6.7 to +12.9;
The estimate of family finances over the next year was up from +24.1 to +29.3;
Economic conditions over the next 12 months was up from +8.1 to +13.7;
Economic conditions over the next 5 years was up from +10.6 to +15.2;
The measure of whether it was a good time to buy a major household item rose from +32.7 to +38.6.
The measure of inflation expectations 2 years ahead fell from 4.6 per cent to 4.3 per cent.
Job advertisements
Job advertisements declined in December, falling by 2.3 per cent to 167,656 ads, after rising by 1.1 per cent in November. Job ads are up a healthy 10.8 per cent on a year ago.
What is the importance of the economic data?
The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
What are the implications for interest rates and investors?
Dwelling investment and home prices may have peaked, but home building, particularly for apartments, remains solid. We expect new home building activity to ease in 2018 from recent historical highs, though a ‘soft landing’ appears likely given strong population and jobs growth, interstate migration and interest rate stability. Renovations and alterations could provide further support to housing activity amid an ageing stock of Aussie houses and units.
The better-than-expected recent consumer confidence readings provide us with cautious optimism that growth of retail spending may have bottomed. While a positive seasonal impact may be at play, a recent report from Deutsche Bank suggests that the Amazon launch on December 5 didn’t adversely impact retail sales. According to Deutsche, feedback from retailers, suppliers and landlords on Christmas trading has been ‘positive’ in contrast with the weak conditions reported in early November, with almost every retailer reporting ‘solid sales growth’.
That said, consumers remain constrained by subdued pay rises, elevated debt and rising bills. Retailers are under pressure from increased global competition and technological disruption, which is deflating goods prices and weighing on profits. Deloitte forecasts retail spending to rise 3.6 per cent in nominal terms in 2018, in-line with financial year 2017, but well below the 20-year average of 5.3 per cent. As always, labour market strength, fluctuations in the Aussie dollar, interest rate movements and political discourse will impact the consumer psyche.
CommSec expects interest rate stability through to at least the end of 2018.
Ryan Felsman, Senior Economist, CommSec