Income lifts; Building rebounds; Credit stays weak
Export & import prices; Building approvals; Credit

Export & import prices: Import prices rose by 0.4 per cent in the September quarter and were up 1.2 per cent on a year ago. Export prices rose by 1.3 per cent in the quarter to be up 14.7 per cent on the year.

Lending: Private sector credit (effectively outstanding loans) rose by 0.2 per cent in September after lifting 0.2 per cent in August. Annual credit growth fell from 2.9 per cent to an 8-year low of 2.7 per cent. APRA data shows that loans via credit cards hit a 9½-year low in September.

Building approvals: Council approvals to build new homes lifted 7.6 per cent from 6½-year lows in September. The value of home and commercial building totalled $114.5 billion in the year to September, 15 per cent above decade averages.

China data: The manufacturing purchasing managers index (PMI) fell from 49.8 to 49.3 in October (forecast 49.8). The services PMI fell from 53.7 to 52.8 (forecast 53.9). Any reading above 50 signifies expansion.

The terms of trade data is useful in assessing the outlook for the Australian dollar and therefore trade-exposed businesses. Credit card data is important for the retail and financial sectors. The approvals data has implications for banks, retailers, developers, building and building material companies.

What does it all mean?

• Aussie continue to get richer. The prices we are getting for our exports are outpacing the prices we pay for our imported goods, putting the ‘terms of trade’ at 6-year highs. Both prices and volumes are rising, boosting the economy’s wealth.

• Home building has softened in a trend sense but commercial building is still lifting. The near $115 billion of building approvals is around 15 per cent above long-term averages.

• The Aussie housing market revival – centred on Sydney and Melbourne – may have seen a recent upswing in new home lending activity, but housing credit growth is still benign. Lending conditions have broadly eased, but slow adjustment to repayments appear to be capping credit growth. Annual investor credit growth has turned negative for the first time on record.

• Perhaps more troubling for Reserve Bank policymakers is the ongoing weakness in business credit growth. While there was a solid pick-up in September, the annual growth rate has decelerated to a 15-month low. Small businesses, in particular, are still contending with challenging business conditions (and greater compliance) amid the economic slowdown. And the Reserve Bank has already highlighted reports of difficulty in SMEs obtaining business loans. It is hoped that lower borrowing costs and signs of a stabilisation in the economy will encourage Corporate Australia to once again increase investment in capital and equipment.

• The pace of annual personal credit growth has hit decade lows, but it’s difficult to determine whether Aussies are being more disciplined with debt or it’s due to structural changes around increasing debit card use and millennials’ focus on ‘buy now, pay later’ payment methods.

What do the figures show?

Export & import prices

• The Bureau of Statistics (ABS) reported that import prices rose by 0.4 per cent in the September quarter to be up 1.2 per cent over the year.

• Import prices were driven by: gold, general industrial machinery and telecom equipment. There were offsetting falls in import prices from petroleum, and organic chemicals.

• Six of the ten broad import categories recorded price increases in the September quarter.

• Export prices rose by 1.3 per cent in the September quarter to be up 14.7 per cent over the year. Overall, export prices were driven by higher prices for iron ore, gold, base metals, metal scrap and meat. There were offsetting falls in prices by coal, cereals, textiles and petroleum.

• Eight of the ten broad export categories recorded price increases in the September quarter.

• The ratio of export prices to import prices (a proxy for the terms of trade) rose by 1.0 per cent in the September quarter to fresh 6-year highs.

Private sector credit & APRA data (September)

• Private sector credit (effectively outstanding loans) rose by 0.2 per cent in September after also lifting 0.2 per cent growth in August. Annual credit growth fell from 2.9 per cent to an 8-year low of 2.7 per cent.

• Housing credit grew by 0.2 per cent in September. And the annual growth rate fell from 3.2 per cent to 3.1 per cent – the slowest growth rate on record.

• Owner occupier housing credit rose by 0.4 per cent in September to stand 4.8 per cent higher over the year – equalling the weakest annual growth rate in the past 5½ years.

• Investor housing finance fell by 0.1 per cent in September with the annual decline the biggest on record at -0.1 per cent.

• Personal credit fell by 0.7 per cent in September – the equal biggest decline in 10½ years. Lending fell by 4.4 per cent over the year – the biggest annual decline in a decade.

• Business credit rose by 0.4 per cent in September. But the annual growth rate fell from 3.5 per cent to a 15-month low of 3.3 per cent.

• The M3 money aggregate rose by 0.3 per cent in September and Broad Money also lifted by 0.3 per cent. Annual growth of the M3 money aggregate rose from 3.5 per cent to 3.8 per cent with the Broad Money annual growth rate up from 3.6 per cent to 3.9 per cent.

• Loans and advances by banks grew by 3.6 per cent in the year to September, down from 3.9 per cent in the year to August.

Building Approvals – September

• Council approvals to build new homes rose for the first time in four months in September. Approvals rose by 7.6 per cent – the biggest rise in in seven months – and lifted from 6½-year lows.

• House approvals rose by 2.6 per cent and apartment approvals rose by 16.1 per cent.

• In trend terms, overall approvals fell by 0.8 per cent, the 22nd straight fall.

• Over the past year 176,236 new homes were approved (decade average 195,736) – the lowest number of new approvals in six years.

• Dwelling approvals across states/territories: NSW (down 2.5 per cent); Victoria (up 3.3 per cent); Queensland (up 19.6 per cent); South Australia (up 16.0 per cent); Western Australia (down 24.5 per cent); Tasmania (up 3.4 per cent). Trend terms: Northern Territory (down 9.3 per cent); ACT (down 1.8 per cent).

• The value of all commercial and residential building approvals eased by 16.6 per cent after soaring by 25 per cent in August. Residential approvals rose by 8.0 per cent with new building up by 8.8 per cent and alterations & additions higher by 2.8 per cent. But commercial building fell by 36.6 per cent after soaring by 58.8 per cent in August.

• Over the year to September, building approvals totalled $114.5 billion, 15.4 per cent above the decade average.

What is the importance of the economic data?

• The Australian Bureau of Statistics (ABS) provides quarterly estimates of export and import prices. The figures assist in gauging inflationary pressures in the economy.

• Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

• 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.

What are the implications for interest rates and investors?

• The Reserve Bank is in the process of assessing information. No rate changes are expected until the New Year at the earliest.

• The weak Chinese purchasing manager survey results may put new pressure on Chinese and US trade negotiators to come up with a deal.

• Commercial building activity is buoyant and serving to offset softness in home building. Together with a bevy of infrastructure projects, there is no shortage of building/construction work. But builders and building material firms may need to travel to embrace the opportunities.

Craig James, Chief Economist, CommSec