Commercial building approvals at record highsBuilding approvals; Weekly petrol prices; Services sector survey
Dwelling approvals: Dwelling approvals rose by 17.1 per cent in January after declining by a downwardly revised 20.6 per cent in December (previously -20.0 per cent). It was the strongest monthly increase in over four years. The annual value of commercial building approvals stands at record highs of $47.4 billion.
Petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 4.2 cents to 137.9 cents a litre in the past week – the largest decline in 20 weeks.
CBA services gauge: The CBA Purchasing Manager’s Index (PMI) for the services sector rose to 54.2 in February from 53.8 in January. New orders accelerated to a 7-month high of 55.9 in February, up from 53.2 in January. A reading over 50 signifies services sector expansion.
AiGroup services performance: The Australian Industry Group (AiG) Australian Performance of Services Index (PSI) eased by 0.9 points to 54.0 in February – the twelfth consecutive month of expansion and the longest continuous expansion in almost ten years. 
What does it all mean?
Commercial building approvals reached record highs in dollar terms at $47.4 billion in January. Strong growth in tourism and high occupancy rates are likely encouraging activity in the CBD hotels sector. High demand for warehousing from growing online retailing may also be supporting industrial commercial developments. Office sentiment also remains elevated according to the latest NAB commercial property survey.
Apartment approvals remain volatile, especially in Melbourne. This is to be expected during the summer ‘low’ season. Victorian dwelling approvals are up by 22.5 per cent over the year, reflecting the underlying strength of the economy and nation-leading population growth.
But it’s Queensland that leads the nation in total building approvals with an annual growth rate of 24.5 per cent. Much has been made of a potential apartment supply glut in Brisbane. Apartment approvals have rebounded, almost doubling over the year to January.
Overall dwelling investment may have peaked, but detached house building activity remains healthy. House approvals are up by 5.9 per cent over the year to January, despite some seasonal weakness, especially in Queensland.
In more good news, petrol prices fell across the country for the first time in three weeks and by the largest amount in 20 weeks.
Across capital cities, the largest declines were experienced in Sydney, Melbourne and Adelaide. Prices even went down in Brisbane amid news that the RACQ is negotiating discounts with independent retailers – PUMA, Matilda and Choice – in an attempt to save its 1.7 million members’ 4 cents per litre at the pump.
Gross retail petrol margins declined during the first week of March. Last week the five-week average gross retail margin (gap between the pump and terminal gate price) declined by 0.2 cents to 13.32 cents a litre.
Business activity is buoyant. Non-mining business conditions are near decade highs and profits are strong. Leading indicators of the services sector point to further output growth. New orders placed with companies are accelerating on strengthening domestic demand and successful marketing campaigns.
Businesses are busier, hiring extra workers and business and wage inflation is stirring. According to the CBA “On the price front, panellists reported that suppliers had increased their charges and that higher wages had driven up labour costs. Companies also mentioned greater fuel prices. Consequently, input price inflation accelerated to a sharp pace. However, firms took advantage of strong demand conditions and passed on higher cost  burdens to customers.”
What do the figures show?Building Approvals:
Dwelling approvals rose by 17.1 per cent in January after declining by a downwardly revised 20.6 per cent in December (previously -20.0 per cent). It was the strongest monthly increase in over four years. In trend terms, approvals rose by 0.1 per cent after three consecutive monthly declines.
The total value of dwelling approvals rose by 18.3 per cent to $6.9 billion in January, increasing from $5.9 billion in December.
Over the past year 224,335 new homes were approved, the highest level in ten months, but were down 3.7 per cent on a year ago.
House approvals fell by 0.9 per cent in January after increasing by 1.3 per cent in December.
Apartment approvals rose by 42.2 per cent in January, the strongest monthly increase in over four years, after falling by 39.7 per cent in December.
Dwelling approvals across states/territories in January: NSW (+29.7 per cent); Victoria (+21.0 per cent); Queensland (+7.0 per cent); South Australia (-1.0 per cent); Western Australia (+2.3 per cent); Tasmania (+1.9 per cent). Trend terms: Northern Territory (-8.2 per cent); ACT (-32.7 per cent).
The value of all commercial and residential building approvals rose by 2.7 per cent in January. Residential approvals increased by 18.3 per cent with new building up by 21.0 per cent, while alterations & additions fell by 1.0 per cent. Commercial building fell by 20.7 per cent.
Petrol prices
According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 4.2 cents to 137.9 cents a litre in the past week – the largest fall in 20 weeks.
The metropolitan petrol price fell by 5.5 cents to 137.5 cents per litre and the regional price declined by 1.7 cents to 138.6 cents per litre.
Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 10.7 cents to 130.7 c/l), Melbourne (down by 5.9 cents to 140.8 c/l), Brisbane (down by 2.5 cents to 145.6 c/l), Adelaide (down by 4.7 cents to 125.7 c/l), Perth (down by 1.2 cents to 135.9 c/l), Darwin (down by 0.8 cents to 148.8 c/l), Canberra (down by 0.1 cents to 148.0 c/l) and Hobart (down by 0.2 cents to 146.0 c/l).
The national average Australian price of diesel petrol fell by 0.2 cents to 138.8 cents per litre. The metropolitan price fell by 0.3 cents to 139.5 c/l and the regional average price fell by 0.2 cents to 138.2 c/l.
Today, the national average wholesale (terminal gate) unleaded petrol price stands at 122.5 cents a litre, up by 1.1 cents over the week. The terminal gate diesel price stands at 123.6 cents a litre, up by 1.5 cents over the past week.
Last week the key Singapore gasoline price fell by US$1.20 or 1.6 per cent to US$75.00 a barrel. In Australian dollar terms the Singapore gasoline price last week fell by 73 cents or 0.8 per cent to $96.70 a barrel or 58.04 cents a litre.
MotorMouth records the following average retail prices for capital cities today: Sydney 125.7c; Melbourne 136.4c; Brisbane 140.5c; Adelaide 144.8c; Perth 126.0c; Canberra 148.0c; Darwin 148.5c; Hobart 145.8c. 
CBA Purchasing Managers Index for Services
The Commonwealth Bank Purchasing Managers Index (PMI) for services rose to 54.2 in February from 53.8 in January. New orders accelerated to a 7-month high of 55.9 in February, up from 53.2 in January. Readings above 50 signal an improvement in business activity on the previous month, while readings below 50 show deterioration.
The CBA reported: “Solid growth in new orders continues to propel the services sector along at a decent pace. The very positive readings on business expectations suggests services firms see expansion continuing through 2018.”
And: “Services firms continue to expand their labour forces but the rate of expansion is slowing and now sits below the survey average. There are some indications that the slowdown reflects difficulties in finding suitable labour and wages are lifting as a result. More broadly, capacity pressures persist and are finding outlets in faster growth of input and output prices.” 
AiGroup Performance of Services Index
The Australian Industry Group (AiG) Australian Performance of Services Index (PSI) eased by 0.9 points to 54.0 in February – the twelfth consecutive month of expansion and the longest continuous expansion in almost ten years. PSI results above 50 points indicate expansion, with higher numbers indicating stronger rates of growth.
Three of the five activity sub-indexes in the Australian PSI rose during February:
• Supplier deliveries fell by 0.7 points to 53.0;• Stocks (inventories) rose by 0.2 points to 52.7;• Employment fell by 4.2 points to 53.9;• New orders rose by 0.3 points to 54.8; and• Sales rose by 0.8 points to 54.7.
Two of the three prices sub-indexes in the PSI increased in February:
• Input prices rose 8.8 points to 69.5;• Selling prices rose by 1.1 points to 52.9;• Average wages fell by 3.3 points to 54.2.
By industry, the results were mixed, with the AiGroup reporting: ‘Six of the nine sub sectors expanded (wholesale, transport, finance, property & business, health, and personal and recreational services), two were approximately stable (hospitality and communication) and one contracted (retail).”
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.
Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
The CBA Purchasing Manager indexes (PMIs) and Australian Industry Group (AiG) Australian Performance of Services Index (PSI) for services and manufacturing are released each month. The Australian PMIs are the local equivalents of similar indexes released for other countries. The PMIs are amongst timeliest economic indicators released in Australia. The PMIs are useful not just in showing how the sectors are performing but in providing some sense about where they are heading. The key ‘forward looking’ components are orders and employment.
What are the implications for interest rates and investors?
The housing market is continuing to rebalance across the country. Prices are cooling in Sydney and Melbourne and investor demand has subsided in the face of lending restrictions.
Commercial property building has reached record highs. This could provide support for building commencements, especially with residential construction softening from record high levels. Of course, approvals need to translate into starts, though commercial property building activity sentiment is positive.
Apartment supply remains in focus. Seasonal volatility makes it difficult to get a read on council approvals – especially in Sydney and Melbourne. Nevertheless, concerns still persist about a supply glut of inner Brisbane (i.e. West End) and suburban (i.e. Chermside) high rise unit blocks. Still, Queensland is leading the country in jobs growth and interstate migration is strengthening.
Petrol prices have declined big time over the past week. Global oil markets were weaker on renewed concerns about strengthening supply in the US oil and gas basins. This is a relief for Aussie household budgets.
The services sector continues to drive non-mining business investment and output. Both the CBA and AiGroup surveys compliment the strength observed in the NAB business conditions sub-index.
Importantly, the CBA survey points to emerging inflationary pressures. Input prices and labour costs are rising. Services firms have reported “difficulties in finding suitable labour and wages are lifting as a result”. Wages growth may be at an inflection point.
CommSec expects interest rates to be unchanged until at least the December quarter.
Published by Ryan Felsman, Senior Economist, CommSec