Record home loans; Building boom
Car sales lift from lows; Activity accelerates
International trade; New vehicle sales; Lending; Services; Construction
Foreign trade: The trade surplus rose by $1.6 billion to $7.46 billion in October. Australia has posted 34 successive monthly trade surpluses.
New vehicle sales: New vehicle sales totalled 95,205 units in November, up 12.4 per cent on November 2019 – the first annual increase in 2½ years (since February 2018).
Purchasing manager indexes (PMI): The ‘final’ IHS Markit services PMI rose from 53.7 to 55.1 in November – the highest reading since July. The Australian Industry Group (AiGroup) Performance of Construction Index (PCI) lifted from of 52.7 to a 2½-year high of 55.3 in November. The house sub-sector index hit record highs. Readings above 50 indicates an expansion of activity.
Home loans: The value of new loan commitments for housing rose by 0.7 per cent in October to record highs. Loans are up over 34 per cent in five months.
The trade data is instructive on income flows in the economy and consumer and business activity and has implications for the currency. New vehicle sales data provides insights into business and consumer spending and provides guidance on conditions for the Autos and Components sector of the sharemarket. The purchasing manager surveys provides insights into business activity. The Performance of Construction index provides insights for business conditions in the sector. Lending finance data has implications for banks, retailers, developers, building and building material companies.
What does it all mean?
• The surveys of purchasing managers are amongst the timeliest economic indicators. And all the latest readings covering manufacturing, services and construction sectors are indicating good momentum in activity.
• It’s worth highlighting results from the IHS Market survey: “Job creation was reported across both the manufacturing and service sectors. Greater manpower contributed to a further drop in backlogs of work as firms were able to work through previously-placed orders.”
• New vehicle sales are growing again – yet more evidence of economic recovery. Super-low interest rates, the government asset write off scheme and the restriction on overseas travel are all factors encouraging business and personal buyers to purchase new vehicles.
• Budding owner-occupiers – especially first home buyers – as well as investors are keen on property. New lending is at record highs with some stunning annual growth rates being recorded. Loans to build new homes are up over 80 per cent on a year ago, courtesy of state government incentives and super-low interest rates.
• In Queensland, the ACT, South Australia and Western Australia the average mortgage for an established home stands at record highs. In the past two years average mortgages have lifted more than $50,000 in both Queensland and South Australia and rose $120,000 in the ACT.
What do the figures show?
International trade – October
• The trade surplus increased rose by $1.6 billion to $7.46 billion in October. The surplus had hit a record high $10.53 billion in March. Australia has posted 34 successive monthly trade surpluses.
• The rolling annual surplus rose from $70.583 billion in the year to September to $74.165 billion in the year to October.
• Exports of goods and services rose by 5.4 per cent (exports of goods rose by 6.4 per cent).
• Imports of goods and services rose by 0.6 per cent (goods imports rose by 0.7 per cent).
• Rural exports rose by 8.2 per cent after falling 1.3 per cent in September. Exports of non-rural goods rose by 8.4 per cent after falling by 0.9 per cent in September. Gold exports fell by 16.1 per cent after rising by 71.7 per cent in September.
• Within imports, consumer imports rose by 1.6 per cent; capital goods imports rose by 1.6 per cent and intermediate goods imports rose by 1.7 per cent.
• A net services surplus of $1.483 billion in October after a $1.523 billion surplus was posted in September.
• Australia’s annual exports to China rose from $145.23 billion in September to $146.73 billion in October. Exports to China are up 1 per cent on a year ago.
• Australia’s annual imports from China edged lower from $82.22 billion in September to $82.10 billion in October. Annual imports were up 4.5 per cent on a year ago.
• Australia’s rolling annual trade surplus with China rose from a 14-month low of $63.02 billion in September to $64.63 billion in October.
• Australia’s rolling annual trade deficit with the US fell to near 4-year lows of $16.644 billion.
New vehicle sales – November
• New vehicle sales totalled 95,205 units in November, up 12.4 per cent on November 2019 – the first annual increase in 2½ years (since February 2018).
The Federal Chamber of Automotive Industries reported:
• “The November 2020 market of 95,205 new vehicle sales is an increase of 10,497 vehicle sales or 12.4 per cent on November 2019 (84,708) vehicle sales. November 2020 had 24.7 selling days compared to November 2019 with 25.7, but this resulted in an increase of 558.4 vehicle sales per day.
• The Passenger Vehicle Market is down by 2,317 vehicle sales (-10.1 per cent) over the same month last year; the Sports Utility Market is up by 10,481 vehicle sales (26.5 per cent); the Light Commercial Market is up by 2,187 vehicle sales (11.5 per cent); and the Heavy Commercial Vehicle Market is up by 146 vehicle sales (4.7 per cent) versus November 2019.
• Toyota was market leader in November, followed by Mazda and Hyundai. Toyota led Mazda with a margin of 14,151 vehicle sales and 14.9 market share points.”
• Sales across states and territories over the year to November: NSW (up 13.0 per cent); Victoria (up 9.1 per cent); Queensland (up 19.5 per cent); South Australia (up 7.5 per cent); Western Australia (up 12.6 per cent); Tasmania (down 10.9 per cent); Northern Territory (up 32.9 per cent); ACT (up 14.5 per cent).
• The rolling annual total of new vehicle sales in October was 905,555, down 15.1 per cent on the year and the first gain in 33 months. Rolling annual passenger car sales fell by 29.9 per cent on the year with SUVs down 7.5 per cent and “other vehicles” down 10.5 per cent.
• In the year to November, SUVs accounted for a record 66.5 per cent of combined SUV and passenger vehicle sales.
IHS Markit Purchasing Manager indexes (PMI) – November
• The ‘final’ IHS Markit services PMI rose from 53.7 to 55.1 in November. The Composite Output Index, which measures combined services and manufacturing output, rose from 53.5 in October to 54.9 in November, signalling a stronger increase in private sector business activity.
Performance of Construction – November
• The Australian Industry Group (AiGroup) Performance of Construction Index rose from 52.7 to 55.3 in November – the highest level since April 2018. The house sub-sector index hit a record high. Readings over 50 denote expansion.
Lending – October
• The value of new loan commitments for housing rose by 0.7 per cent in October after rising by 5.9 per cent in September. Owner-occupier loans were up 0.8 per cent to a record $17.39 billion. And investor loans were up by 0.3 per cent. The accompanying table has details of lending per category.
• The value of owner-occupier first home buyer loan commitments rose by 3.1 per cent to be up 48.6 per cent on the year.
• The value of first home buyer loan commitments accounted for 31.5 per cent of all owner occupier commitments (excluding refinancing), an 11-year high.
• The number of owner occupier first home buyer loan commitments increased 3.4 per cent in seasonally adjusted terms to an 11-year high of 13,481 (41.7 per cent of all loans).
• Personal finance fixed term loan commitments rose by 4.3 per cent in the month by were still 7.9 per cent down on a year ago.
• Personal lending from revolving sources (including credit cards) fell by 14.5 per cent in October. Loans were down by 42.9 per cent over the year.
• New finance leases rose by 11.9 per cent in the month. Finance leases were up 11.8 per cent on the year.
• The value of new loan commitments to businesses for construction fell by 2.1 per cent in the month to be down by 40.3 per cent on the year.
• Loans for the purchase of property by business fell by 7.8 per cent to be down by 10.4 per cent over the year.
What is the importance of the economic data?
• 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.
• “Lending Indicators” 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.
• The Federal Chamber of Automotive Industries releases estimates of 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.
• IHS Markit undertakes a survey of purchasing managers across manufacturing and services sector. The ‘flash’ or ‘early/preliminary ’readings provide timely information on the economy. As such, the survey is valuable for investors.
• The Australian Industry Group compile the Performance of Manufacturing Index, the Performance of Services index and the Performance of Construction index each month (the latter with the Housing Industry of Australia). The Commonwealth Bank and Markit also compile purchasing manager surveys for manufacturing and services sectors. The surveys are amongst the timeliest economic indicators released in Australia. The surveys are useful not just in showing how key sectors are performing but also in providing some sense about where they are headed. The key ‘forward looking’ components are orders and employment.
What are the implications for investors?
• In the space of four months the number of people taking out a loan to build a new home has doubled. In October construction loans totalled $2.9 billion, almost double the ‘normal’ lending of $1.5 billion a month. The surge in home building will provide solid support for housing and retail industries as well as some parts of the manufacturing sector.
• There is also good news for the new car market with a surge in new purchases in the latest month.
• And to complete the trifecta, exports are posting solid gains, despite frictions with key trading partner, China.
• The economy is generating healthy momentum, driving incomes and profits higher.
Published by Craig James, Chief Economist, CommSec