Record vehicle sales; Healthy trade surplusInternational trade; Services gauges; New vehicle sales
Trade surplus: A trade surplus of $825 million was posted in February. The rolling annual surplus narrowed from $10.46 billion to $8.34 billion.
New vehicle sales: According to the Federal Chamber of Automotive Industries (FCAI), new vehicle sales hit a record high of 1,201,309 units in the year to March, up by 2.5 per cent on a year ago.
Services gauges: The CBA Purchasing Managers Index (PMI) for the services sector rose from 54.2 points in February to 55.6 points in March. The Australian Industry Group (AiG) Performance of Services Index (PSI) rose from 54.0 points in February to 56.9 points in March. Readings over 50 signify services sector expansion. 
What does it all mean?
Trade currently dominates the headlines at present. The good news is that Australia’s trade accounts are in surplus with the rest of the world – although to an extent that would incur the wrath of key trade partners. Still, Australia’s annual surplus with China is not far away from the highest on record. And Australia’s trade deficit with the US is again not far away from the biggest ever recorded.
While the world is closely watching the sabre-rattling of the US and China over trade, we remain hopeful that both countries will work in their own, and the world’s interests, by resolving issues through discussion.
Aussies continue to update their rides. On almost a monthly basis, new vehicle sales are hitting record highs. And that is important with all the debate about the strength of consumer spending. Aussie consumers do continue to spend, but not just on traditional retail goods, with travel, cars and services generally taking a greater share of total purchases.
The latest services gauges confirm the healthy state of Aussie businesses and the healthy state of the economy. At some point, rates will need to be lifted to keep growth on a sustainable path, and we continue to look for a rate hike late in 2018.
What do the figures show?International trade:
A trade surplus of $825 million was posted in February. The rolling annual surplus narrowed from $10.46 billion to $8.34 billion.
The net services deficit widened from $517 million to $582 million.
Exports of goods and services were flat in February (goods fell by 0.2 per cent). 
Imports of goods and services rose by 0.4 per cent (goods up 0.1 per cent).
Exports were up by 3.5 per cent on a year ago, while imports are up 11.9 per cent, just off the fastest rate in almost six years.
Rural exports rose by 15.5 per cent in February after falling 10.2 per cent in January. Non-rural goods fell 0.4 per cent and gold exports fell by 23 per cent after a 53.9 per cent gain in January.
Within imports, consumer imports rose by 6.5 per cent in February with capital goods imports up by 1.0 per cent and intermediate goods imports fell by 6.2 per cent.
Consumption goods imports were up by 17.1 per cent on a year ago while capital goods imports were up by 2.5 per cent and intermediate goods imports were up by 17.0 per cent.
Australia’s annual exports to China rose from $99.43 billion to US$99.87 billion. Exports to China are up 13.7 per cent on a year ago. Exports to China account for 33 per cent of Australia’s total exports.
Australia’s annual imports from China rose from $64.24 billion to $65.36 billion. Annual imports were up by 11.0 per cent on a year ago. Imports from China accounted for 22.2 per cent of Australia’s total imports.
Australia’s rolling annual trade surplus with China fell from $35.19 billion to $34.51 billion – the fourth straight fall.
Australia’s annual exports to the US fell from $11.77 billion to a 3-year low of $11.67 billion in February. Exports are down by 1.4 per cent on a year ago. Exports to the US accounted for 3.85 per cent of Australia’s total exports.
Australia’s annual imports from the US fell from $30.13 billion to $29.95 billion in February. Imports are up just 3.7 per cent over the year. Imports from the US accounted for 10.2 per cent of Australia’s total imports, just short of the smallest share on record.
Australia’s rolling annual trade deficit with the US narrowed from $18.35 billion (a 5-year high) to $18.28 billion in February.
New vehicle sales
According to the Federal Chamber of Automotive Industries (FCAI), there were 106,988 new vehicle sales in March, up 1.5 per cent over the year. In the twelve months to February sales hit a record 1,201,309 units, up 2.5 per cent on a year ago.
The FCAI reported: “The March 2018 market of 106,988 new vehicle sales is an increase of 1,578 vehicle sales or 1.5 per cent on March 2017 (105,410) vehicle sales. March 2018 (25.5) had one less selling day than March 2017, however, this resulted in an increase of 217.9 vehicle sales per day.”
“The Passenger Vehicle Market is down by 2,852 vehicle sales (-7.3 per cent) over the same month last year; the Sports Utility Market is up by 4,041 vehicle sales (9.7 per cent); the Light Commercial Market is down by 95 vehicle sales (-0.4 per cent); and the Heavy Commercial Vehicle Market is up by 484 vehicle sales (16.3 per cent) versus March 2017.
“Five of the states and territories recorded sales gains during March compared with the same month last year. The Northern Territory led the way with 12.8 per cent growth, followed by the ACT with 7.9 per cent, then Victoria (+6.3 per cent), Queensland (+1.8 per cent), and Western Australia (+1.3 per cent). South Australia, Tasmania and NSW all recorded falls.”
“SUVs provided the market’s firm support during March with private sales up 7.6 per cent and business sales up 0.4 per cent in a segment which increased 9.7 per cent overall compared with the same month last year. SUV sales grew progressively during the first quarter to now represent 42.3 per cent of the total market.” 
CBA Purchasing Managers Index for Services
The CBA Purchasing Manager’s Index (PMI) for the services sector rose from 54.2 points in February to 55.6 points in March. Readings above 50 signal expansion of the services sector.
The CBA reported: “Strong activity is flowing through to labour demand. Panellists are also indicating that strong labour demand is boosting salaries. And that other input costs are also rising. The survey results indicate that service firms are taking advantage of robust demand conditions to pass on this increased cost burden.” AiGroup Performance of Services Index
The Australian Industry Group (AiG) Performance of Services Index (PSI) rose from 54.0 points in February to 56.9 points in March. PSI results above 50 points indicate expansion, with higher numbers indicating stronger rates of growth. The PSI has been above 50 for 13 straight months – the longest period of expansion in a decade. All components of the PSI are above 50 and all components except input prices and selling prices rose in the latest month.
AiGroup notes: “Employment demand remains mixed across the services sectors, with stronger demand from business-oriented industries with generally higher level skills, but weaker demand across retail, wholesale and hospitality.” And further: “Wage pressures appear to be building up in higher-skill occupations and in the business-oriented sub-sectors.”
What is the importance of the economic data?
The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.
The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
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?
Business surveys continue to note high demand for skilled workers and upward pressure on wages. But at this point the wage pressures aren’t broad-based. It is a situation that deserves close monitoring.
The lift in new vehicle sales highlights the positive environment for the auto sector.
CommSec expects no change to official interest rates until at least the December quarter.
Published by Craig James, Chief Economist, CommSec