Better Budget outcome. Home building still strong.

Building approvals; job vacancies; private sector credit; budget outcome

Today’s news

• The federal budget was in deficit by $134.2 billion in 2020/21 or 6.5 per cent of GDP – the biggest deficit as a share in GDP in 75 years.

• Job vacancies fell by 9.8 per cent in the three months to August.

• Building approvals rose by 6.8 per cent in August.

• Private sector credit (loans outstanding) rose 0.6 per cent in August to be up 4.7 per cent on the year.

Federal Budget result and implications

• The final budget figures for the 2020/21 year (FY21) are at hand. And the main value of the data is to highlight the resilience of the economy. The deficit of just over $134 billion is almost $27 billion smaller than estimated at the handing down of the May 2021 budget. And the deficit was $79.5 billion smaller than estimated at the time of the handing down of the 2020/21 budget in October 2020.

• Economic growth of 1.4 per cent in FY21 was stronger than the 1.25 per cent figure estimated in May and far better than the 1.25 per cent contraction expected back in October 2020. The reason? People held on to their jobs, reflecting support and stimulus provided by all levels of government as well as the central bank. Governments spent, Aussie consumers kept spending and more people elected to build or buy homes.

• Following the 1.4 per cent growth in FY21, Commonwealth Bank group economists tip slower growth this year – FY22 – of 1.0 per cent. Clearly that reflects the impact of Delta, particularly in NSW and Victoria over the September quarter, and now moving into the December quarter.

• The Australian economy is tipped to contract by 4.4 per cent in the September quarter before rebounding 2.3 per cent in the December quarter.

• It’s early days to try and predict the FY23 year – the year starting next July – but our current thinking is 5.1 per cent growth on the assumption that future lockdowns become fewer in number and shorter in duration and foreign borders re-open as planned in late 2021/early 2022.

Federal Government support for workers and business

• Today the Federal Treasurer announced continued financial support for NSW, Victoria and ACT businesses.

• Yesterday the Treasurer announced a phasing down on Covid-19 disaster payments as states or territories reached 70 per cent full vaccination of its population.

• The latest updates on support measures will help workers and businesses in their planning for so-called ‘freedom’ days and the period that follows. Stimulus is always well regarded by sharemarket investors. Consumer staples is today’s out-performer, up 2.4 per cent.

Today’s economic data: Job vacancies

Job vacancies fell by 9.8 per cent in the three months to August to 334,000.

• The result predictably reflects the Delta lockdowns in the south-east of the nation. In fact vacancies slumped 16 per cent in both NSW and South Australia. And vacancies fell most in Accommodation and food services (down by 28 per cent); and Arts and recreation services (down by 27 per cent). But job vacancies are at record highs in Western Australia and Queensland.

• Before the Delta outbreaks, the job market was remarkably resilient. With foreign borders closed, business have been keen to retain staff. Once lockdowns become shorter and less frequent the job market should bounce back. Vacancies are still 46 per cent higher than at the start of the pandemic (or more than 106,000 higher).

• The high number of jobs on offer and generally firm job security raise scope for increased retail therapy in November and December.

Today’s economic data: Building approvals

Building approvals rose by 6.8 per cent in August.

• Council approvals to build new dwellings are volatile on a monthly basis. The near 7 per cent lift in approvals in August followed an 8.6 per cent fall in July. But in the year to August, dwelling approvals stood at a 3-year high of 228,838, up 30.9 per cent on the year and only 6 per cent below all-time highs.

• After falling 27 per cent in three months, approvals to build houses rose 3.8 per cent in August with apartments up 12.7 per cent.

• Work in home construction will remain elevated for the next 6-9 months. The interesting time will come when Aussies can travel abroad and migrants can again move to Australia. The interaction will determine where home building is headed later in 2022.

Today’s economic data: Private sector credit

Private sector credit (loans outstanding) rose 0.6 per cent in August to be up 4.7 per cent on the year.

• Housing credit is the mainstay, up 0.6 per cent in the month, but business loans posted a nice 0.6 per cent gain also in August. Personal lending fell by 0.6 per cent. Housing credit is up 6.2 per cent on the year with business loans up 3.4 per cent.

• Owner-occupier housing credit is up 8.4 per cent on the year (5-year high) with investor loans up 2.2 per cent (3-year high).

• There is scope for annual credit growth to lift to near 7 per cent in early 2022 – a 13-year high and therefore supportive of the outlook for the financial sector.

Resources & Energy quarterly

• The Federal Department of Industry has released its quarterly forecasts for the non-rural resources sector. The commentary and forecasts may be useful for investors assessing prospects for mining and energy sectors.

• “Australia’s resource and energy exports are estimated at a record $349 billion in 2021–22, up from $310 billion in 2020–21. In 2022–23, exports are forecast to decline by 14 per cent to $299 billion.”

Published by Craig James, Chief Economist, CommSec