Record Adelaide building; Consumers still chipperBuilding approvals; Consumer confidence
Building approvals: Council approvals to build new homes fell by 3.2 per cent in May – the third fall in four months. But the rolling annual total of approvals rose to a 15-month high.
Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.8 per cent to 121.4, but this was still above the average of 113.9 since 2014 and average of 112.9 since 1990. The 4-week average confidence index stands at a 4½-year high.
What does it all mean?
Consumer confidence bounces around from week to week. But to get an idea of the direction of sentiment, you need to look at a smoothed measure like the 4-week moving average. At the latest 4-week average is the highest since November 2013 – more than 4½ years ago. That result is encouraging given that consumers are currently having to contend with a lower Aussie dollar and higher petrol prices. Still, interest rates are low, housing affordability has improved, tax cut legislation has been passed and the job market is healthy.
It’s also worth noting that current readings for four of the five consumer sentiment questions are above long-term averages with the remaining survey question response largely in par with the long-term average.
The assumption is that home building is soaring in just Sydney and Melbourne. In fact, Greater Adelaide dwelling approvals hit record highs in the year to May while Greater Melbourne continues to set new records.
Approvals to build new homes also bounce around from month-to-month. But the rolling annual total of approvals is still rising, just six per cent below the all-time high. Bottom-line is that the construction pipeline remains full.
What do the figures show?Building Approvals (May):
Council approvals to build new homes fell by 3.2 per cent in May – the third fall in four months. But approvals were up 3.1 per cent on the year.
House approvals fell 9 per cent in May – the first fall in four months. Apartment approvals rose by 4.7 per cent after falling by 14.3 per cent in April.
In trend terms, overall approvals fell by 1.5 per cent. Trend house approvals fell by 0.4 per cent with trend apartment approvals down by 2.8 per cent.
Over the past year 228,832 new homes were approved – a 15-month high but down from the record high of 242,779 in the year to August 2016.
Dwelling approvals across states/territories in May: NSW (-1.2 per cent); Victoria (+0.3 per cent); Queensland (-26.6 per cent); South Australia (+35.8 per cent); Western Australia (-0.6 per cent); Tasmania (+1.8 per cent). Trend terms: Northern Territory (+2.8 per cent); ACT (+1.5 per cent).
The value of all commercial and residential building approvals fell by 0.1 per cent in May to be down 3.1 per cent on the year. Residential approvals fell by 0.3 per cent; new building was down 1.2 per cent; and alterations & additions rose by 6.5 per cent. Commercial building rose by 0.4 per cent in May – the first gain in three months.
Over the year, building approvals eased further from the record high of $127.2 billion in March to $126.2 billion in May. Annual commercial building approvals stood at $46.7 billion in May, down from a record high $48.5 billion in March.
Consumer Sentiment
The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.8 per cent to 121.4, above the average of 113.9 since 2014 and average of 112.9 since 1990. The 4-week average confidence index stands at a 4½ -year high.
Three of the components of the index increased last week:
• The estimate of family finances compared with a year ago was up from to 106.7 to 109.7;
• The estimate of family finances over the next year was up from 123.9 to 124.2;
• Economic conditions over the next 12 months was down from 116.5 to 108.8;
• Economic conditions over the next 5 years was down from 117.0 to 114.1;
• The measure of whether it was a good time to buy a major household item was up from 143.0 to 145.1.
The measure of inflation expectations rose from 4.4 per cent to 4.5 per cent.
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.
What are the implications for interest rates and investors?
Consumers are generally upbeat about their finances and the outlook for the economy. The problem for retailers is that higher petrol prices are serving to restrain spending.
The rolling annual totals of building approvals show the true state of the construction pipeline. Whether you look at the number or value, building approvals are just off the highest levels ever recorded. Companies dependent on the building of homes or commercial building will be well placed for work until well into 2019.
CommSec expects no change to official interest rates until early 2019. The extremely slow lift in wage and goods price growth suggests the first rate hike in the new cycle won’t occur until next year.
Published by Craig James, Chief Economist, CommSec