Credit card debt at 8-year low

Slowest home loan growth for over 40 years
Private sector credit; Credit cards; China data

Credit cards: According to APRA, bank lending to households by credit card fell by 3.9 per cent in the year to April. Lending totalled $39.6 billion in April – an 8-year low.

Lending: Private sector credit (effectively outstanding loans) rose by 0.2 per cent in April (consensus: +0.3 per cent. Lending growth for housing is the slowest since records began in 1976.

China purchasing managers’ indexes: China’s official manufacturing purchasing managers’ index fell from 50.1 points to 49.4 points in May (forecast 49.9). And the services gauge was unchanged at 54.3 points in May (survey: 54.3 points). A level above 50 denotes in expansion in activity.

Private sector credit figures have implications for finance providers, retailers, and companies dependent on business spending. Credit card data is important for the retail and financial sectors. The Chinese data have implications for the currency markets and therefore exporters and importers.

What does it all mean?

• Ahead of the election, Aussies were reluctant to borrow. It remains to be seen whether the proposed rate cut(s) will change the behaviour of Aussie consumers and businesses. But lower interest rates, tax cuts, APRA changes on mortgage serviceability, the increase in minimum wages and government assistance for first home buyers may lead to a lift in borrowing by home owners and investors.

• The world has changed markedly since the election. So today’s data is effectively ‘ancient history’. But it is interesting that more and more Australians are trimming outstanding credit card debt, thus strengthening balance sheets and lifting the capacity to spend.

• Ahead of the election, investors were on strike. And that is understandable. If Labor won government, there was the likelihood of changes to investment markets, both property and shares. Now we will have to wait and see how investors respond to the status quo. Anecdotes suggest that investors are again actively looking at the opportunities.

• The softness in Chinese economic data keeps the door open for more stimulus. In turn, stimulus through rate cuts and/or infrastructure spending would be positive for Australian resource providers.
What do the figures show?

Private sector credit & APRA data

• Private sector credit (effectively outstanding loans) rose by 0.2 per cent in April (consensus: +0.3 per cent) after a 0.3 per cent lift in March. Annual credit growth fell from 3.9 per cent in March to a 5½-year low of 3.7 per cent in April.

• Housing credit grew by 0.3 per cent in April. And the annual growth fell from 4.0 per cent to 3.9 per cent – the slowest growth rate on record.

• Owner occupier housing credit rose by 0.4 per cent in April to stand 5.5 per cent higher over the year – the weakest annual growth rate for almost four years.

• Investor housing finance was flat for a fourth successive month in April with annual growth the slowest on record at 0.6 per cent.

• Personal credit fell by 0.3 per cent in April to be down 2.8 per cent over the year – the equal slowest annual growth rate in over nine years.

• Business credit was flat in April – the smallest outcome in 11 months. The annual growth rate fell from 5.0 per cent to 4.5 per cent.

• The M3 money aggregate and Broad Money both lifted by 0.1 per cent in April after rising 1.2 per cent in March. Annual growth of the M3 measure rose from 3.9 per cent to 4.3 per cent. And the Broad Money measure rose from 3.9 per cent to 4.2 per cent.

• Term deposits with banks fell by $3.7 billion to $624.2 billion in April. And the annual growth rate eased from a 23-month high of 8 per cent in March to 7.3 per cent in April.

• Loans and advances by banks grew by 4.0 per cent in the year to April, near the slowest growth rate in almost 27 years.

• Loans and advances by non-bank financial intermediaries rose by 9.4 per cent in the year to April, down from 11.0 per cent over the year to February and 10.5 per cent in the year to March.

• Deposits at banks rose by 0.2 per cent in April after lifting 1.0 per cent in March. Annual growth rose from 4.0 per cent in March to 4.3 per cent in April – a 15-month high.

• According to APRA, loans by banks to households via credit cards fell from $39.85 billion in March to an 8-year low of $39.62 billion in April. Credit card lending is down 3.9 per cent over the year.

What is the importance of the economic data?

• 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 National Bureau of Statistics releases the Chinese purchasing manager indexes at the beginning of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.

What are the implications for interest rates and investors?

• It is remarkable that loans extended to buy homes are growing at the slowest pace for over 40 years. Low inflation, lower home prices, an investor strike and competition from other asset classes all are playing roles. The situation doesn’t seem sustainable, reflecting an alignment of deflationary influences.

• CommSec expects the Reserve Bank to cut rates next Tuesday. Another rate cut is possible in August.

Published by Craig James, Chief Economist,CommSec