Record run of job vacancies; Solid building pipeline
Job ads; Retail trade; Building approvals; Inflation, construction & services gauges

What happened? ANZ job advertisements rose by 3.0 per cent in June – a record 13th consecutive month of gains. Vacancies are at 12½-year highs of 211,854 available positions. Retail trade rose by 0.4 per cent in May to be up 7.7 per cent on a year ago. Council approvals to build new homes fell by 7.1 per cent in May to be up 52.7 per cent on the year – the strongest annual growth rate in 11 years.

Implications: The uncertainty posed by the more virulent Covid-19 delta-variant and resulting lockdowns are likely to be the focus of tomorrow’s Reserve Bank Board meeting. With around half of the nation’s population recently under ‘stay-at-home’ orders – curtailing spending at shopping malls – shares of the retail property heavy S&P/ASX 200 Real Estate Index lost 2.4 per cent last week – the biggest decline since mid-February.

What does it all mean?

• Australia’s rapid economic recovery has so far been underpinned by the health authorities’ ability to successfully supress Covid-19 flare-ups through snap lockdowns, which has in turn supported consumer and business confidence. And massive fiscal and monetary policy stimulus have bolstered the balance sheets of Aussie households and businesses, promoting consumer spending, business investment and hiring. Australia’s booming housing market, strong commodity prices and still-solid demand for our major resources exports are also boosting incomes.

• Data released today shows that Victoria’s most recent government restrictions crimped consumer spending in May. And spending in both June and July are likely to be impacted by broader ‘mini’ lockdowns in New South Wales, Queensland, Western Australia and the Northern Territory. Of course, reduced mobility curtails spending at shopping malls. Shares of the retail property heavy S&P/ASX 200 Real Estate Index (REITs) – which includes shopping centre operators Scentre Group and Vicinity Centres – lost 2.4 per cent last week. That said, government income support, a build-up in household savings and pent-up demand immediately after restrictions are eased have boosted consumer spending throughout the pandemic.

• The uncertainty posed by the more virulent Covid-19 delta-variant and recent resulting lockdowns across the Australia are likely to be the focus of tomorrow’s Reserve Bank Board meeting. While the latest virus setback is not expected to derail the economic recovery, uncertainty over the duration of current government restrictions and Australia’s slow vaccine rollout, are likely to weigh on consumer spending and hours worked in the near-term.

• In this environment, we expect Reserve Bank policymakers to remain cautious, potentially slowing the Board’s huge bond buying program, which has kept borrowing costs ultra-low for both households and businesses. Also, Commonwealth Bank (CBA) Group economists expect the Bank to retain its 3-year government bond yield target – currently pegged to the April 2024 maturity – signalling that the next rate hike will likely occur before 2025.

• While the stronger-than-expected economic recovery has pulled-forward the potential timing of the first interest rate hike to late 2022 or 2023, annual inflation growth continues to undershoot the Reserve Bank’s 2-3 per cent target. And the Board’s “full employment” target of around 4 per cent remains some way off being achieved, despite reduced labour supply from closed borders and a record monthly sequence of ANZ job vacancy gains.

• That said, surveys from both the Australian Industry Group and IHS Markit released today continue to suggest that inflationary pressures are building in both the services and construction industries. While building approvals continue to ease-off elevated levels in May due to the winding back of the HomeBuilder stimulus, demand for housing construction and renovations – along with supply disruptions and bottlenecks in building materials – pushed both the AiGroup input and selling price indexes to record highs in June. And IHS Markit reported that output price inflation hit historic highs in the services sector in June.

What do you need to know?

Job advertisements – June

• ANZ job advertisements rose by 3.0 per cent in June to a 12½-year high of 211,854 available positions. Ads have lifted for a record 13 successive months to be up 129.1 per cent from a year ago. According to ANZ economists, “Vacancies are twice their pre-pandemic level, and there are now 1.9 unemployed people per vacancy, easily the lowest ratio on record.”

Retail trade – May

• Retail trade rose by 0.4 per cent in May to be up 7.7 per cent on a year ago. Over the month, spending rose by the most in Queensland (up 1.6 per cent), followed by Tasmania (up 1.5 per cent) and Western Australia (up 1.3 per cent). But spending fell by the most in Northern Territory (down 2.1 per cent) and Victoria (down 0.9 per cent).

• Spending rose most at supermarket and grocery stores in May (up 1.9 per cent) from Cafes, restaurants and catering services (up 1.8 per cent) and Other retailing (up 1.3 per cent). But spending fell most for newspaper and book retailing (down 5.0 per cent), Other specialised food retailing (down 2.5 per cent), and furniture, floor coverings, houseware and textile goods retailing (down 2.4 per cent).

Building Approvals – May

• Council approvals to build new homes fell by 7.1 per cent in May after falling by 5.7 per cent in April. But approvals are still up 52.7 per cent on the year – the strongest annual growth rate in 11 years.

• In May, total house approvals fell by 10.3 per cent (up 53.6 per cent on the year) with apartments up 0.7 per cent (up 51.0 per cent on the year). Over the past year, 144,827 new houses were approved – the most for a 12-month period in over 37 years.

Melbourne Institute inflation gauge – June

• The headline inflation measure rose by 0.4 per cent in June to be up 3.0 per cent on a year ago. The trimmed mean gauge – the Reserve Bank’s preferred measure – lifted by 0.1 per cent to be up 1.8 per cent on a year ago.

Services and construction gauges – June

• The final IHS Markit services index eased to 56.8 in June from 58 in May. Input prices rose for a 13th successive month due to rising transport costs and wages, with output charges inflation at survey highs (since May 2016). The final composite index, which also includes factory output, fell to 56.7 in June from 58 in May.

• The Australian Industry Group and HIA Australian Performance of Construction Index fell from 58.3 to 55.5 in June, below record highs of 61.8 in March. Survey results above 50 points indicate an expansion in activity.

Published by Ryan Felsman, Senior Economist, CommSec