Petrol prices to slide; Car sales down again

New vehicle sales; Services gauge; Living Cost indexes

New vehicle sales: In January, 71,731 new vehicles were sold, down by 12.5 per cent (10,263 vehicles) over the year. In the year to January, sales of new vehicles totalled 1,052,604 units, down 8.2 per cent on a year ago.

Petrol: The terminal gate (wholesale) unleaded petrol price has hit a 7-month low of 126.5 cents a litre. The wholesale price has fallen around 9 cents a litre from early January highs.

Services sector: The CBA/IHS Markit Services Purchasing Managers’ Index rose from 49.8 points to 50.6 points in January. Any reading below 50 indicates contraction in activity.

Living cost indexes: In the December quarter, the cost of living for employee households rose 0.4 per cent to be up 1.0 per cent on the year. The cost of living rose 1.8 per cent over the past year for pensioner & beneficiary households and rose 1.9 per cent for self-funded retirees. The broader Consumer Price Index rose 1.8 per cent over the year.

The vehicle sales data provides guidance on consumer spending as well as conditions for the Autos and Components sector of the sharemarket. The services purchasing managers index provides guidance on conditions in retailing, financial services and the services sector more broadly.

What does it all mean?

• New vehicle sales are still well down on a year ago. But bushfires, drought, coronavirus and even hailstorms would have restricted sales activity. Looking ahead, purchases could be supported as owners replace vehicles that have been affected by natural disasters. Rising home prices also serve to lift asset values of households, boosting the borrowing capacity for purchases of ‘big ticket’ items like new vehicles.

• The lift in the services gauge is encouraging but there are still headwinds to navigate.

• Global oil prices have slid to 13-month lows on fears that the coronavirus could disrupt travel and oil demand for a number of months. In Australia the wholesale price of fuel has fallen over 9 cents a litre to a 7-month low – and this could lead to lower pump prices in the next fortnight.

• Wage earners are still coming to grips with annual wage growth hovering near 2 per cent. The good news for wage earners though is that their cost of living is growing at an even slower pace, near 1 per cent. In contrast, living costs for pensioners and self-funded retirees is closer to 2 per cent according the latest Bureau of Statistics data.

What do the figures show?

New vehicle sales

• The Federal Chamber of Automotive Industries reported: “The January 2020 market of 71,731 new vehicle sales is a decrease of 10,263 vehicle sales or -12.5 per cent on January 2020 (81,994) vehicle sales. January 2020 had one less selling day (24.0) than January 2019 and this resulted in a decrease of 291 vehicle sales per day.”

• “The Passenger Vehicle Market is down by 7,556 vehicle sales (-26.9 per cent) over the same month last year; the Sports Utility Market is down by 547 vehicle sales (-1.5 per cent); the Light Commercial Market is down by 1,774 vehicle sales (-11.2 per cent); and the Heavy Commercial Vehicle Market is down by 386 vehicle sales (-17.6 per cent) versus January 2019.”

• “Toyota was the market leader in January with 14,809 sales and 20.6 per cent market share. Mazda claimed second place with 6,695 sales (9.3 per cent share), followed by Hyundai with 5,443 sales (7.6 per cent share), Mitsubishi with 5,108 sales (7.1 per cent share) and Kia with 4,705 sales (6.6 per cent share).”

• “The Toyota Hilux, with 2,968 sales, again claimed the title of Australia’s best-selling vehicle, closely followed by the Ford Ranger with 2,624 sales. Australia’s third favourite vehicle during January was the Toyota Corolla with 2,370 sales, followed by the Toyota RAV4 with 2,290 sales and the Mitsubishi Triton with 2,075 sales.”

• Sales across states and territories over the year to January: NSW (down 12.2 per cent); Victoria (down 14.7 per cent); Queensland (down 13.0 per cent); South Australia (down 10.5 per cent); Western Australia (down 5.6 per cent); Tasmania (down 9.1 per cent); Northern Territory (down 24.7 per cent); ACT (down 14.0 per cent).

• The rolling annual total of new vehicle sales in 2019 was 1,052,604, down 8.2 per cent on the year. Passenger car sales fell by 17.7 per cent on the year with SUVs down 2.1 per cent and “other vehicles” down 6.5 per cent.

Services Purchasing Managers’ index

• The CBA/IHS Markit Manufacturing Purchasing Managers’ Index rose from 49.8 points to 50.6 points in January. Any reading below 50 indicates contraction in activity.

• According to CBA/IHS Markit, “The health of the service sector improved at the beginning of the year, as indicated by a return to growth of business activity following two months of decline. While output was higher, the rate of increase in services activity was marginal, restricted by bushfires in some parts of Australia, according to anecdotal evidence.”

• “…longer-term prospects also improved. The Future Output Index, a measure of sentiment, rose to the highest since September last year. Optimism was mainly connected to planned capital investments, business expansions, government infrastructure spending, higher sales forecasts and new marketing strategies. Some firms however expressed concerns about the negative impact on activity of bushfires and the coronavirus outbreak in China.”

Living cost indexes

• The Consumer Price Index measures “price inflation for the household sector as a whole”. But to measure purchasing power for different groups in the economy, the Bureau of Statistics compiles living cost indexes. The September quarter figures were issued today.

• The Living Cost Indexes (LCI) have been designed to answer the question:
‘By how much would after tax money incomes need to change to allow households to purchase the same quantity of consumer goods and services that they purchased in the base period?’

• In the December 2019 quarter, the living costs of pensioner and beneficiary households rose 0.7 per cent (1.8 per cent annual). Over the same period, the living costs of self-funded retiree households rose 0.5 per cent (1.9 per cent annual), age pensioner households rose 0.5 per cent (1.8 per cent annual), other government transfer recipient households rose 0.9 per cent (1.9 per cent annual) and employee households rose 0.4 per cent (1.0 per cent annual).

• Over the past decade, arguably employee households have had more to celebrate than other groups. The LCI for employees lifted by only 19.8 per cent, followed by self-funded retirees (up 22.8 per cent); age pensioners (up 23.3 per cent), pensioner and beneficiary households (up 25.1 per cent) and ‘other government transfer recipient households’ (up 26.5 per cent).

What is the importance of the economic data?

• The Federal Chamber of Automotive Industries releases data for new vehicle sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.

• The AiGroup and CBA Purchasing Manager indexes (PMIs) 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 and employment.

• The Australian Bureau of Statistics releases data each quarter on Living Cost Indexes – essentially price trends (inflation) for different demographic segments. The data is useful in understanding consumer spending trends.

What are the implications for interest rates and investors?

• The slower pace of living costs for wage earners together with lower petrol prices represent good news for retailers.

• Businesses dependent on new vehicle sales still face challenging times. But higher home prices and replacement activity generated by natural disasters could serve to support sales over coming months.

• The latest lift in services activity adds to the firmer data readings more recently such as employment, job ads, inflation data and building approvals.

• The Reserve Bank could cut rates further in coming months if needed.

Published by Craig James, Chief Economist, CommSec