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Slowest annual home price growth in five yearsRecord manufacturing activity
Home prices; Manufacturing; Job Advertisements; Weekly petrol
Home prices: The CoreLogic Home Value Index of capital city home prices fell by 0.2 per cent in March to stand 0.8 per cent higher over the year. The national home price index was flat in March to be up 1.2 per cent over the year. It was the smallest annual growth in national prices in over five years.
Record manufacturing expansion: The Australian Industry Group Performance of Manufacturing Index rose to a record high 63.1 points in March, up from 57.5 points in February. However, the CBA/Markit Manufacturing Purchasing Managers’ Index fell from 55.6 points in February to 54.3 points in March – a six month low. Readings above 50 points indicate that the manufacturing sector is expanding.
Petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 4.8 cents to 139.5 cents a litre in the past week – the largest increase in five weeks.
Job advertisements: ANZ Job Advertisements were flat in March after declining by a downwardly-revised 0.4 per cent (previously -0.3 per cent) in February. Job ads are still up 11.5 per cent on a year ago.
What does it all mean?
Home prices across Aussie capital cities are increasing at the slowest annual growth rate in over five years. However, it’s not all bad news. Prices only declined in three capital cities during March – Sydney, Melbourne and Adelaide. The Reserve Bank will be comforted that home prices are becoming more sustainable.
Weakness is concentrated in the detached housing market and at the ‘top end’ of the Sydney and Melbourne housing market. That said, median dwelling sales prices (3-month rolling average) appear to have reached an inflection point in March, implying that prices may be stabilising in Australia’s two largest cities.
Apartment prices are holding-up, despite lending restrictions for investors. It appears that first home buyers are taking advantage of lower entry prices and state government and supplier deliveries are all at record levels. And wages growth and inflation are beginning to emerge.
According to the AiGroup: “While production and sales volumes are very strong, continuing input price pressures – notably for energy, a revival of wage levels and a further lift in the number of businesses reporting difficulty in hiring skilled staff – are combining to constrain margins and the capacity for further expansion”.
After a period of record-breaking jobs growth it’s unsurprising that job advertisements are easing back from their ‘break-neck’ speed. Nevertheless, the level of job advertisements remains consistent with continued strength in the employment market.
Aussie motorists probably felt some pump pain over the Easter long weekend. Retail petrol prices rose last week by the most in five weeks.
The Singapore price of unleaded petrol is the key petrol pricing benchmark for Australia. Around 20 per cent of petrol is imported from Singapore and South Korea to meet Aussie demand according to the Australian Institute of Petroleum. Last week the benchmark Singapore price rose to its highest level in 2½ years.
Gross retail petrol margins fell last week. The five-week average gross retail margin (the gap between the pump and terminal gate price) fell by 1.0 cent to 11.90 cents a litre.
What do the figures show?Home prices
The CoreLogic Home Value Index of capital city home prices fell by 0.2 per cent in March to stand 0.8 per cent higher over the year.
The national home price index was flat in March to be up 1.2 per cent over the year. It was the smallest annual growth in national prices in over five years.
In capital cities, house prices fell by 0.2 per cent in March and apartment prices were flat. House prices were up 0.2 per cent on a year ago, but apartments were up by 2.6 per cent.
In regional areas, home prices rose by 0.4 per cent in March to be up 2.6 per cent on the year.
The average Australian capital city house price (median price) was $695,328 and the average unit price was $575,798.
Dwelling prices fell in three of the eight capital cities in March: Home prices fell in Sydney (down 0.3 per cent); Adelaide (down 0.3 per cent) and Melbourne (down 0.2 per cent). Prices rose in Hobart (up 1.7 per cent); Darwin (up 1.0 per cent); Perth (up 0.3 per cent); Canberra (up 0.2 per cent) and Brisbane (up 0.1 per cent).
Home prices were higher than a year ago in five of the eight capital cities in March. Prices rose most in Hobart (up 13.0 per cent); Melbourne (up 5.3 per cent); Canberra (up 2.9 per cent); Adelaide (up 1.7 per cent); and Brisbane (up 1.3 per cent). Prices fell in Darwin (down 7.5 per cent), Perth (down by 2.4 per cent) and Sydney (down by 2.1 per cent).
Total returns on capital city dwellings rose by 4.1 per cent in the year to March with houses up 3.3 per cent on a year earlier and units up 6.6 per cent.
Manufacturing Purchasing Managers’ Indexes
The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose to a record high 63.1 points in March from 57.5 points in February. The month of March marked the 18th consecutive month of expanding or stable conditions for the manufacturing sector. Capacity utilisation reached a record high 81.2 per cent in March.
“After a sustained period of expansionary activity in 2017, more manufacturers are becoming confident enough to employ more staff. Concerns about skill shortages and/or wage pressures are emerging in some sub-sectors” the AiG said.
According to the AiGroup all seven activity sub-indexes accelerated in March: New orders and sales rose by 11.2 points and 10.5 points, respectively, while employment increased by 2.2 points to 60 points – both record highs. Price measures also increased with wage costs increasing by 6.6 points to 63.4 points and selling prices rising by 1.6 points to 52.2 points. Input prices were unchanged in the month but remain elevated at 68.5 points.
The CBA/Markit Manufacturing Purchasing Managers’ Index fell from 55.6 points in February to 54.3 points in March. Readings above 50 points indicates that the sector is expanding.
CBA/Markit notes: “Australia’s manufacturing sector continued to expand in March, albeit to the softest extent in six months. This slower pace of improvement reflected weaker growth rates for output, new orders and employment. Nonetheless, new business continued to expand sharply, exerting pressures on operating capacities and supply chains. Input prices rose markedly, amid raw material shortages, prompting firms to hike selling prices.”
Petrol prices
According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 4.8 cents to 139.5 cents a litre in the past week – the largest increase in five weeks.
The metropolitan petrol price rose by 6.1 cents to 140.0 cents per litre and the regional price increased by 2.0 cents to 138.3 cents per litre.
Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 5.8 cents to 127.4 c/l), Melbourne (up by 16.0 cents to 146.4 c/l), Brisbane (up by 9.9 cents to 147.0 c/l), Adelaide (up by 13.2 cents to 143.0 c/l), Perth (up by 0.3 cents to 136.0 c/l), Darwin (unchanged at 148.4 c/l), Canberra (unchanged at 148.0 c/l) and Hobart (up by 0.3 cents to 146.0 c/l).
The national average Australian price of diesel petrol rose by 0.4 cents to 138.8 cents per litre. The metropolitan price rose by 0.2 cents to 139.3 c/l and the regional average price rose by 0.6 cents to 138.4 c/l.
Today, the national average wholesale (terminal gate) unleaded petrol price stands at 126.6 cents a litre, up by 3.8 cents over the week. The terminal gate diesel price stands at 127.7 cents a litre, up by 3.5 cents over the past week.
Last week the key Singapore gasoline price rose by US75 cents or 0.9 per cent to US$81.05 a barrel. In Australian dollar terms the Singapore gasoline price last week rose by $1.60 or 1.5 per cent to $105.74 a barrel or 66.50 cents a litre – the highest level in over 2½ years.
MotorMouth records the following average retail prices for capital cities today: Sydney 126.4c; Melbourne 142.8c; Brisbane 144.8c; Adelaide 137.6c; Perth 147.1c; Canberra 147.9c; Darwin 148.8c; Hobart 134.4c.
Job advertisements
ANZ Job Advertisements were flat in March after declining by a downwardly revised 0.4 per cent (previously – 0.3 per cent) in February. Job ads stand at 177,084 positions, still up 11.5 per cent on a year ago.
What is the importance of the economic data?
The CoreLogic Hedonic Australian Home Value Index is based on Australia’s biggest property database. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the CoreLogic Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.
The Australian Industry Group compile the Performance of Manufacturing Index and Performance of Services index each month. CBA and Markit also compile purchasing manager surveys for manufacturing and services sectors. The surveys are amongst the timeliest economic indicators released in Australia. The surveys are useful not just in showing how key sectors are performing but also in providing some sense about where they are headed. The key ‘forward looking’ components are orders and employment.
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 nonmetropolitan 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 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?
The rebalancing of Australia’s property market continues. Prices are becoming more sustainable and in some cases more affordable for younger Aussies. Sydney annual home price growth is the weakest in six years.
Detached house prices are declining, particularly in the wealthier parts of Sydney and Melbourne, after a strong run of growth. However, apartment prices are holding their value, despite lending restrictions and regional home prices are increasing.
Home prices in Perth and Darwin appear to have bottomed and even increased in March. Hobart continues to lead the way.
In the manufacturing sector there are reports of skilled shortages and rising input costs, potentially leading to higher wages and prices. There were similar results in the recent NAB business survey. The outlook for nonmining business investment and employment growth is positive.
Petrol prices increased over the Easter long weekend. Prices are up by 10.1 per cent over the last 12 months and around 1 per cent in the March quarter. Therefore, petrol will again be a positive contributor to headline inflation.
CommSec expects official interest rates to be stable until late 2018. The Reserve Bank continues to monitor developments in the housing market closely. Housing credit growth is slowing and financial conditions (i.e. rising funding costs) are tightening for lenders.
Published by Ryan Felsman, Senior Economist, CommSec