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Record Chinese exports; Record SUV salesInternational trade; Retail trade; New vehicle sales; Services gauges
Trade surplus: The trade surplus rose from a downwardly-revised $472 million (previously $977 million) in April to $827 million in May. It was the 10th surplus in 12 months.
Record Chinese exports: Australia’s annual exports to China rose from US$100.78 billion in April to US$102.65 billion in May – a new record high.
Retail trade: Retail trade rose by 0.4 per cent in May following an upwardly-revised 0.5 per cent increase in April (previously up 0.4 per cent). But annual spending growth fell from an upwardly-revised 2.7 per cent (previously up 2.6 per cent) to 2.5 per cent.
New vehicle sales: According to the Federal Chamber of Automotive Industries (FCAI), there were 130,300 new vehicle sales in June, down 2.9 per cent over the year. In the twelve months to June, sales totalled 1,195,086 units, down from 1,198,957 units in May, but up  1.3 per cent on a year ago. Annual SUV sales hit a record high of 490,656 units in June. SUVs now account for 41.1 per cent of all new vehicles sold.
Services gauges: The CBA Purchasing Manager’s Index (PMI) for the services sector fell from 55.9 points in May to 52.7 points in June. But the Australian Industry Group (AiG) Performance of Services Index (PSI) rose for a 16th consecutive month to 63.0 points in June, up from 59.0 points in May – a record high. Readings over 50 signify services sector expansion.
What does it all mean?
The records keep on falling. Australia’s annual exports to China are at fresh record highs. Sales of SUVs are at all-time highs. Spending at chain stores and large retailers are at fresh record levels. And services activity expanded at the fastest pace on record.
And what about the supposed demise of Aussie bricks and mortar retailers? Spending on food grew at the fastest annual growth rate in 3½ years. And department stores benefited from the cooler winter in May with their tills ringing hot.
It’ll be interesting to see whether the Turnbull government’s 10 per cent GST levy on goods bought for less than $1,000 from overseas sellers (effective July 1) will have any impact on internet purchases.
Car sales and the housing market are slowing, but tell that to the tradies out there purchasing record numbers of SUVs and utes. The Toyota HiLux, Ford Ranger and Mitsubishi Triton dominate motor vehicle purchases.
The latest AiGroup services gauge has expanded for 16 consecutive months and is at record-high levels, confirming the healthy state of Aussie non-mining business conditions. 
The underlying property and business services’ sub-sector index is also at record-high levels (69.7 points). Strong infrastructure investment is supporting activity in the legal, accounting, consulting, engineering, and administrative and office services, as well as real estate and property management industries.
Today’s trade data was below expectations, but Australia has now recorded surpluses in 10 of the past 12 months. Importantly, exports rose solidly with the bulk of our goods and services going to our largest trading partner, China.
What do the figures show?Retail trade
Retail trade rose by 0.4 per cent in May following an upwardlyrevised 0.5 per cent increase in April (previously reported as up 0.4 per cent). But annual spending growth fell from an upwardlyrevised 2.7 per cent (previously up 2.6 per cent) to 2.5 per cent.
Non-food retailing rose by 0.4 per cent in May to be up 1.7 per cent over the year.
Spending rose most in May for Department stores (up 3.9 per cent) and Clothing, footwear and personal accessories (up 2.2 per cent). Food retailing (up 0.3 per cent) and Household goods (up 0.1 per cent) were also positive.
Spending fell the most for Cafes, restaurants and takeaways (down 1.0 per cent). Other retailing fell by 0.1 per cent.
Spending rose across most Australian states and territories in May: New South Wales (up 0.5 per cent), Queensland (up 0.4 per cent), South Australia (up 1.1 per cent), Victoria (up 0.2 per cent), Tasmania (up 1.5 per cent) and the Northern Territory (up 0.4 per cent). The ACT was unchanged. But Western Australia fell by 0.5 per cent).
Sales by chain-store retailers and other large retailers rose by 1.2 per cent in May. Annual growth rose from 3.6 per cent to 4.7 per cent – the strongest growth rate in 11 months.
International trade
The trade surplus rose from a downwardly-revised $472 million (previously $977 million) in April to $827 million in May. It was the 10th surplus in 12 months. But the rolling annual surplus fell from $6.648 billion to $5.656 billion.
The net services deficit narrowed from $642 million to $590 million.
Exports of goods and services rose by 4.0 per cent (goods rose by 4.7 per cent).
Imports of goods and services rose by 3.0 per cent (goods rose by 3.8 per cent).
Exports were up by 8.1 per cent on a year ago, while imports are up 12.6 per cent.
Rural exports fell by 0.1 per cent – the first fall in four months. Non-rural goods rose by 4.4 per cent. Gold exports rose by 22.4 per cent after falling by 16.1 per cent in April.
Iron ore fines exports rose by 6.0 per cent, but iron ore lump was flat. Thermal coal was down by 5.0 per cent, but semi-soft coal rose by 20.0 per cent and hard coking coal rose by 27.0 per cent. LNG exports fell by 4.0 per cent.
Within imports, consumer imports rose by 5.6 per cent, but capital goods imports fell by 1.6 per cent and intermediate goods imports up by 4.3 per cent.
Consumption goods imports were up by 8.1 per cent on a year ago while capital goods imports were up by 10.5 per cent and intermediate goods imports were up by 17.8 per cent.
Australia’s annual exports to China rose from US$100.78 billion in April to US$102.65 billion in May – a new record high. Exports to China are up 8.8 per cent on a year ago. Exports to China account for 33.1 per cent of Australia’s total exports.
Australia’s annual imports from China rose from US$65.51 billion to US$66.82 billion – a record high. Annual imports were up by 10.1 per cent on a year ago. Imports from China accounted for 22.4 per cent of Australia’s total imports.
Australia’s rolling annual trade surplus with China rose from $35.27 billion to $35.84 billion.
Australia’s rolling annual trade deficit with the US increased from $18.08 billion to $18.27 billion.
New vehicle sales
According to the Federal Chamber of Automotive Industries (FCAI), there were 130,300 new vehicle sales in June, down 2.9 per cent over the year. In the twelve months to June, sales totalled 1,195,086 units, down from 1,198,957 units in May, but up 1.3 per cent on a year ago.
The FCAI reported: “The June 2018 market of 130,300 new vehicle sales is a decrease of 3,871 vehicle sales or down 2.9 per cent on June 2017 (134,171) vehicle sales. June 2018 (25.2) had 0.2 more selling days than June 2017 (25.0) but this resulted in a decrease of 196.2 vehicle sales per day.”
By segment: “The Passenger Vehicle Market is down by 9,085 vehicle sales (down 17.9 per cent) over the same month last year; the Sports Utility Market is up by 4,769 vehicle sales (up 9.3 per cent); the Light Commercial Market is up by 93 vehicle sales (up 0.3 per cent); and the Heavy Commercial Vehicle Market is up by 352 vehicle sales (up 9.1 per cent) versus June 2017.”
By model: “Toyota was market leader in June, followed by Mazda and Hyundai. Toyota led Mazda with a margin of 10,702 vehicle sales and 7.8 market share points.”
States/Territories: NSW sales 44,341 (down by 4.5 per cent on a year ago); Victoria 37,255 (down by 1.5 per cent); Queensland 28,768 (down by 1.7 per cent); South Australia 8,213 (down by 6.7 per cent); Western Australia 10,161 (down by 0.8 per cent); NT 1,333 (down by 3.5 per cent); ACT 2,147 (down by 10.0 per cent). CBA Purchasing Managers Index for Services
The CBA Purchasing Manager’s Index (PMI) for the services sector fell from 55.9 points in May to 52.7 points in June. Readings above 50 signal expansion of the services sector.
The CBA reported: “Strong growth in new business and employment and the very positive expectations for the year ahead indicate we shouldn’t read too much into the apparent slowing in business activity. Panellists are reporting that wages are rising along with headcount. The direction of wages is key to how economic and interest rate risks play out in the year ahead. Nevertheless, the inflation environment from a services perspective looks well contained. Strong upward pressure on input costs is not flowing through to output prices in a consistent manner.” AiGroup Performance of Services Index
The Australian Industry Group (AiG) Performance of Services Index (PSI) rose for a 16th consecutive month to 63.0 points in June, up from 59.0 points in May – a record high. PSI results above 50 points indicate expansion, with higher numbers indicating stronger rates of growth.
At the sub-index level, stocks rose (up 13.7 points to 59.1 points); supplier deliveries (up 8.8 points to 64.8 points); employment (up 4.7 points to 63.9 points) and new orders (up 0.7 points to 65.7 points) all lifted during June, but sales fell (down 0.2 points to 59.9 points).
Key price measures were mixed in June: Average wages (up 0.4 to 65.0 points); selling prices (flat at 52.9 points); input prices (down 0.2 to 66.6 points) and capacity utilisation (down 0.6 points to 81.3 points).
AiGroup notes: ‘The predominantly business-oriented sub-sectors such as property, finance and transport reported solid demand from customers in construction and manufacturing; while the health sector also reported positive results. The more discretionary, mainly consumeroriented sub-sectors continued to remain relatively weak in June… pressures appear to be increasing as skill shortages emerge in higher-skill occupations and in business-oriented subsectors.”
What is the importance of the economic data?
The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
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 wellas 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 andemployment.
What are the implications for interest rates and investors?
The on-going trade surpluses, albeit losing some momentum, provide solid support for the Australian dollar. The Reserve Bank is reasonably quiet on the currency, suggesting that the level is appropriate for current circumstances.
Trade tensions are creating a lot of uncertainty in financial markets at present. On July 6, China and the US are expected to announce ‘tit-for-tat’ retaliatory 25 per cent tariffs on a range of each other’s imported goods and services. Should the situation continue to deteriorate, Australia could be caught in the crossfire. China remains our dominate trade partner with exports reaching fresh record highs in May.
And it’s not only our coal and iron ore exports that could be affected. Services exports are also a strong contributor to national income, especially education and tourism. India has already imposed 60 per cent tariffs on our chickpea exports worth around $1.1 billion in the past financial year.
Household consumption remains an uncertainty for Reserve Bank policymakers this year. Today’s retail sales release will be welcomed. Department stores and clothing and footwear spending picked-up as the winter started to bite. And food and liquor sales annual growth was the strongest since late 2014. Housing-related spending was weak, so this will be something to watch.
More broadly, aggressive global competition remains significant, keeping goods prices in check. CommSec expects official interest rates to be stable until early 2019.
Published by Ryan Felsman, Senior Economist, CommSec