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Consumers shrug off petrol pain.Loans for renovations at 17-year lows.Consumer sentiment; Reserve Bank Board minutes; Lending
Consumer sentiment: The ANZ-Roy Morgan consumer confidence rating rose by 1.9 per cent to 119.5 in the past week. The index is comfortably above the average of 114.2 held since 2014, and above the longerterm average of 113.1 held since 1990.
Reserve Bank Board minutes: The minutes from the October 2 Board meeting were issued. While no rate change is expected any time soon, the Board believes that the next move in rates is up.
Lending finance: Total new lending commitments (housing, personal, commercial and lease finance) fell by 1.5 per cent in August to $69.3 billion. And commitments are down by 4.2 per cent on the year. 
What does it all mean?
Petrol prices may be sitting at 4½-year highs but consumers aren’t spooked. Consumer confidence stands at the highest level since late July. Importantly, consumer views about the state of their finances is at the highest level for over nine months. It seems that the strong job market and more-settled political environment are trumping petrol pump blues. And clearly that is encouraging for retailers.
The Reserve Bank Board spent much of the last meeting assessing the Financial Stability Review (released last Friday) as well as new data on economic growth and employment. The Reserve Bank will closely watch to ensure that there is good access to credit in light of the Royal Commission into the financial sector. Also the Board is closely following global trade issues: “Members noted that developments in trade policies continued to pose significant risks to this outlook.”
New lending for alterations and additions (renovations) stands at 17-year lows. It’s possible that people just like watching programs like ‘The Block’ rather than doing renovations themselves. But more likely, borrowers are tapping into their home loans to fund new projects like kitchens and bathrooms.
What do the figures show?Consumer Sentiment
The ANZ-Roy Morgan consumer confidence rating rose by 1.9 per cent to 119.5 in the past week. The index is comfortably above the average of 114.2 held since 2014, and above the longer term average of 113.1 held since 1990
Four of the five components of the index increased last week: 
• The estimate of family finances compared with a year ago was up from +10.2 to +13.8;
• The estimate of family finances over the next year was up from +26.4 to +27.6;
• Economic conditions over the next 12 months was down from +8.0 to +5.9;
• Economic conditions over the next 5 years was up from +11.0 to +14.7;
• The measure of whether it was a good time to buy a major household item was up from +30.9 to +35.6.
The measure of inflation expectations rose from 4.3 per cent to 4.5 per cent.
Reserve Bank October Board minutes:
On the financial sector Royal Commission: “Members observed that while the regulators had already overseen a tightening of lending standards, and a degree of tightening of lending standards had been implemented by banks in anticipation of the Commission’s findings, it was possible that banks could tighten lending conditions further given the issues raised in the report. Members noted that it would be important to monitor the future supply of credit to ensure that economic activity continued to be appropriately supported.”
On bank non-performing loans: “Australian banks’ ratio of non-performing housing loans had edged up further over the first half of 2018. The ratio was around the same level observed following the financial crisis, but remained low both in absolute terms and relative to other countries. The vast majority of banks’ nonperforming loans remained well secured.”
On household spending: “Members observed that uncertainty about how consumption would respond if there were an extended period of low income growth, and/or declining housing prices, remained an important consideration for the forecasts. More recently, retail sales values had been flat in July and information from liaison with retailers had continued to point to below-average growth in nominal retail spending.”
On the job market: Leading indicators “suggest that employment growth would exceed population growth in coming months, which was expected to result in further gradual absorption of spare capacity in the labour market.”
Lending Finance
Total new lending commitments (housing, personal, commercial and lease finance) fell by 1.5 per cent in August to $69.3 billion. And commitments are down by 4.2 per cent on the year. In trend terms, lending rose for the fourth month, up by 0.4 per cent.
Housing finance: The total value of owner occupied housing commitments excluding alterations and additions fell 0.2 per cent in trend terms and the seasonally adjusted series fell 2.7 per cent.
Alterations & additions lending fell for the third straight month, down 3.5 per cent in August. The value of new lending stands at 17-year lows.
Personal finance commitments: The seasonally adjusted series for the value of total personal finance commitments rose 4.8 per cent. Revolving credit commitments rose 14.3 per cent and fixed lending commitments rose 0.7 per cent.
Loans to buy new or used cars fell to 25-month lows in rolling annual terms in August.
Loans to buy residential blocks of land hit 11-month lows in August.
Commercial finance: The seasonally adjusted series for the value of total commercial finance commitments fell 1.7 per cent. Revolving credit commitments fell 10.0 per cent, while fixed lending commitments rose 0.9 per cent.
Lease finance: The trend series for the value of total lease finance commitments rose 2.1 per cent in August 2018, while the seasonally adjusted series fell 4.7 per cent, after a rise of 1.3 per cent in July 2018.
What is the importance of the economic data?
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.
The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.
What are the implications for interest rates and investors?
Consumers remain positive. But the real test will come over the next month – especially if petrol prices remain elevated.
The value of lending in the economy is tracking sideways. Consumers and businesses aren’t keen on taking on more debt.
The Reserve Bank hasn’t given any sign that it is planning to step off the interest rate sidelines.
CommSec expects no change in the official cash rate until late in 2019.
Pulished by Craig James, Chief Economist, CommSec