10min read
PREVIOUS ARTICLE The Daily Fix - China refrain ... NEXT ARTICLE An “extended period of low i...

Bumper trade surplus; Jobs up; Shares slide
Weekly consumer sentiment; Job ads; International trade

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.3 per cent to 115.8 points after rising by 1.9 per cent in the previous week. Consumer sentiment remains above the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.

Job advertisements: ANZ job advertisements rose by 0.8 per cent in July after rising 4.9 per cent in June – the biggest monthly gain in 18 months. But ads were down by 9.1 per cent over the year to 161,427.

Foreign trade: The trade surplus rose from $6.17 billion to a record high of $8.04 billion in June. Australia has recorded 18 successive monthly trade surpluses. The rolling annual surplus was a record $49.89 billion in the year to June.

Net exports: Net exports (exports less imports) are tipped to add 0.4 percentage points to economic growth in the June quarter. Commonwealth Bank Group economists tip a $1.4 billion current account surplus in the June quarter, the first surplus in 44 years.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The job advertisements data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies such as SEEK. The trade data has the potential to affect the Aussie dollar so it may be important for exporters and importers. The trade data is also instructive on income flows in the economy.

What does it all mean?

• Last week the Aussie sharemarket was at record highs. And the US sharemarket was at record levels in late July. So while sharemarkets have weakened in recent days, the declines have been from lofty levels. The central issue is the intensification of the US-China trade war. The main concern is that the war could lead to further weakness in global economic growth as companies delay investments and hiring of staff. Unfortunately, there are no glimmers of light for an early resolution of the trade crisis. However, central banks are positioned to cut rates as necessary. And governments can also provide support through an easing of fiscal policy.

• Arguably Australia is the real winner of the US-China trade war. Australian exports are going gangbusters – with the trade surplus hitting $8 billion in June alone and a tad under $50 billion over the past year. And both exports to the US and China over the past year have hit record highs. A weaker Aussie dollar has helped. The quality of Australian produce is another key reason why our exports are soaring.

• If China cuts back on US agricultural products, it will find quality products ‘Down Under’ to fill the void. If China wants to ramp up infrastructure spending, the quality raw materials are here in Australia. The sharemarket hasn’t cottoned onto it as yet – but if the US and China don’t want to buy each other’s goods, other countries have opportunities to meet the end demand.

• There is little to read into the drop in consumer sentiment in the past week. The main drag seems to be the lower Aussie dollar, down to decade lows against the greenback. Aussie consumers prefer a stronger currency to fund both overseas trips and on-line purchases from abroad. A cheaper petrol price is the other thing that Aussies would like to see. Motorists may have their wish if the US-China trade dispute continues. There are plenty of other positives for consumers as well – record low interest rates, a sharemarket only recently down from record highs, as well the tax cuts starting to flow through the economy.

What do the figures show?

Consumer Sentiment

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.3 per cent to 115.8 points after rising by 1.9 per cent in the previous week. Consumer sentiment remains above the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.

• Only one out of the five major components of the index rose last week:

The estimate of family finances compared with a year ago was down from +12.1 points to +7.3 points;

The estimate of family finances over the next year was down from +27.1 points to +24.7 points;

Economic conditions over the next 12 months was down from +11.9 points to +5.1 points;

Economic conditions over the next 5 years was up from +9.1 points to +13.2 points;

The measure of whether it was a good time to buy a major household item was down from +32.4 points to +28.9 points.

• The measure of inflation expectations fell from 4.0 per cent to 3.7 per cent.

Job advertisements

• ANZ job advertisements rose by 0.8 per cent in July after rising 4.9 per cent in June – the biggest monthly gain in 18 months. But ads were down by 9.1 per cent over the year to 161,427.

International trade – June

• The trade surplus rose from $6.17 billion to a record $8.04 billion in June. Australia has recorded 18 successive monthly trade surpluses.

• The rolling annual surplus was a record $49.89 billion in the year to June.

• Exports of goods and services rose by 1.4 per cent (exports of goods rose by 1.6 per cent).

• Imports of goods and services fell by 3.6 per cent (goods imports fell by 4.7 per cent).

• Exports were up by 15.5 per cent on a year ago, while imports were down 1.3 per cent.

• Rural exports fell by 4.3 per cent. Cereal grains fell 36 per cent with wool down 19 per cent. But meat rose 8 per cent.

• Exports of non-rural goods rose by 2.7 per cent. Exports of metal ores and minerals rose by 5 per cent with coal up 4 per cent. And exports of metals rose by 21 per cent.

• Within imports, consumer imports fell by 5.1 per cent, capital goods imports fell by 8.7 per cent and intermediate goods imports fell by 3.3 per cent.

• Consumption goods imports were down by 4.3 per cent on a year ago, capital goods imports fell by 4.7 per cent while intermediate goods imports fell by 1.1 per cent.

• The net services deficit improved from $152 million to $124 million.

• Australia’s annual exports to China rose from $130.1 billion in May to a new record high of $133.81 billion. Exports to China are up 26.7 per cent on a year ago. Exports to China account for 36 per cent of Australia’s total exports – a new record high.

• Australia’s annual imports from China eased from a record $78.30 billion to $77.97 billion in June. Annual imports were up by 15.1 per cent on a year ago. Imports from China accounted for 25.42 per cent of Australia’s total imports – a fresh record high.

• Australia’s rolling annual trade surplus with China rose from $51.82 billion to a record $55.84 billion in June.

• Australia exported a record $14.33 billion of goods to the US in the year to June and imported $32.68 billion of goods.

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 monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.

• 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.

What are the implications for interest rates and investors?

• Job ads have lifted for a second straight month, so the early post-election signs are encouraging. If the lift in jobs continues and the jobless rate starts to move towards 5 per cent, then the Reserve Bank will stay on the rates sidelines.

• Australia is exposed to a downturn in the Chinese economy. China takes a record 36 per cent of our exports. And imports from China are also at record highs – accounting for a quarter of all our imports. But China also remains a key opportunity as well, especially if the country is looking to replace US imports. At some point Australia’s share of exports and imports with China will top out. But interestingly, there still appears few signs of that occurring.

• The Reserve Bank is expected to sit back for a few months before deciding the next move on rates.

Published by Craig James, Chief Economist, CommSec