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New car sales lift; Wages gains; Payrolls steady

Construction hiring activity hits 6-year high
New vehicle sales; Weekly Payrolls; Construction gauge; Services activity

New vehicle sales: New vehicle sales totalled 83,977 units in February, up 5.1 per cent on a year ago. While sales have now grown in annual terms for four months, it follows 31 months of falling sales.

Survey of payrolls & wages: The Bureau of Statistics (ABS) reported that national payroll jobs were steady and wages increased by 2.1 per cent between the week ending 30 January 2021 and the week ending 13 February 2021. Payroll jobs as at February 13 were just 0.5 per cent lower than a year earlier and 1.3 per cent below levels at the start of the pandemic.

Construction sector: The Australian Industry Group (AiGroup) Performance of Construction Index (PCI) eased from a 3½-year high of 57.6 in January to 57.4 in February. Apartment building rose 21.2 points to 3½-year high of 66.7 and house building climbed 10.2 points to a record-high 75.5. The employment index was up 4.7 points to a 6-year high of 61.7. Readings above 50 indicates an expansion of activity.

Purchasing managers’ indexes (PMI): The ‘final’ IHS Markit services purchasing manager index fell from 55.6 to 53.4 in February. The composite index, which measures combined services and manufacturing output, eased from 55.9 to 53.7 in February. Readings above 50 indicates an expansion of activity.

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 payroll and wage data helps government with decisions on assistance measures for households and businesses. The Performance of Construction index provides insights for business conditions in the sector. The purchasing manager index gives a guide to conditions in manufacturing and services sectors.

What does it all mean?

• Aussies are upgrading their wheels. New vehicle sales have lifted for four successive months after the longest slump (31 consecutive months) since the Global Financial Crisis. The turnaround in sales is being driven by cashed-up private buyers with purchases up 15.8 per cent in February. But sales to government agencies (down 13.8 per cent) and businesses (down 4.0 per cent) both fell, despite improving business conditions. The Toyota Hi-Lux Ute continues to be Australia’s number one selling new motor vehicle with 4,808 units sold in February. And Chinese manufacturer MG broke into the top 10 with sales volumes of 5,425 units in the month.

• Australia’s residential building industry is going gangbusters, fuelled by record-low interest rates and government stimulus. Aussies have been rushing to get the building of their new homes underway ahead of the expiry of HomeBuilder grants at the end of March. The surge in demand has seen new house building construction activity hit record highs in February. Now the AiGroup apartment building activity index has surged to 3½-year highs. Builders are reporting “localised skilled labour shortages” with the AiGroup average wages index at 2½-year highs and the employment index at the highest level since September 2014.

• And the good news on the employment front continues at the beginning of 2021. In its survey of purchasing manager business activity in February, IHS-Markit economists reported that, “the ongoing upturn in demand encouraged firms in the services sector to expand employment levels at the quickest pace on record.”

• The Bureau of Statistics (ABS) measure of employment using Single Touch Payroll (STP) data showed that payrolls were steady in the first half of February. But payrolls did lift in six states and territories over the fortnight to February 13 with the biggest gains in the Northern Territory (up 1.4 per cent), followed by Queensland and South Australia (both up 0.5 per cent). Of course, snap lockdowns in WA and Victoria weighed on hiring with payrolls down 0.4 per cent in both states. That said, Victorian lockdown 3.0 only commenced on February 12. The tightening of the labour market saw wages increase 2.1 per cent over the first half of February, led by 2.4 per cent pay gains in NSW and South Australia.

What do you need to know?

New vehicle sales – February

• New vehicle sales totalled 83,977 units in February, up 5.1 per cent on a year ago. While sales have now grown in annual terms for four months, it follows 31 months of falling sales.

The Federal Chamber of Automotive Industries reported:

• “The February 2021 market of 83,977 new vehicle sales is an increase of 4,037 vehicle sales or 5.1 per cent on February 2020 (79,940) vehicle sales. February 2020 and February 2021 each had 24 selling days and this resulted in an increase of 168.2 vehicle sales per day.

• The Passenger Vehicle Market is down by 3,466 vehicle sales (-15.3 per cent) over the same month last year; the Sports Utility Market is up by 3,378 vehicle sales (8.6 per cent); the Light Commercial Market is up by 3,784 vehicle sales (24.3 per cent); and the Heavy Commercial Vehicle Market is up by 341 vehicle sales (13.8 per cent) versus February 2020.

• Toyota was market leader in February, followed by Mazda and Hyundai. Toyota led Mazda with a margin of 10,053 vehicle sales and 12.0 market share points.

• The Toyota Hilux was the best-selling vehicle in February 2021 with sales of 4,808 vehicles, followed by the Ford Ranger (2,900), the Toyota RAV4 (2,750), the Toyota Landcruiser (2,521) and the Toyota Corolla (2,427).”

• Sales across states and territories over the year to February: NSW (up 10.8 per cent); Victoria (down 8.7 per cent); Queensland (up 14.8 per cent); South Australia (up 4.7 per cent); Western Australia (up 21.7 per cent); Tasmania (down 3.9 per cent); Northern Territory (up 32.7 per cent); ACT (down 38.3 per cent).

• Year-to-date sales of 163,643 vehicles is up 7.9 per cent on the same period in 2020.

Weekly payroll and wages – Week ending February 13

• According to the Australian Bureau of Statistics (ABS), in the period from January 30, 2021 to February 13, 2021, Australian payroll jobs were steady and national wages increased by 2.1 per cent. Payroll jobs as at February 13 were 0.5 per cent lower than a year earlier and 1.3 per cent below levels at the start of the pandemic.

• Payrolls across state and territories from January 30, 2021 – February 13, 2021: NSW (+0.2 per cent); Victoria (-0.4 per cent); Queensland (+0.5 per cent); South Australia (+0.5 per cent); Western Australia (-0.4 per cent); Tasmania (+0.3 per cent); Northern Territory (+1.4 per cent) and the ACT (+0.2 per cent).

• Between the week ending 30 January, 2021 and the week ending 13 February, 2021 the largest changes across industry were:

Payroll jobs: Education and training payrolls increased by 2.8 per cent. But Agriculture, forestry and fishing and Rental, hiring and real estate services payrolls both decreased by 2.3 per cent.

Total wages: Mining wages increased by 7.2 per cent and Construction wages increased by 5.5 per cent.

Employment size payroll jobs: Under 20 employees (-2.0 per cent); 20-199 employees (+0.1 per cent); 200 employees and over (+1.1 per cent).

Performance of Construction index (PCI) – February

• The Australian Industry Group (AiGroup) Performance of Construction Index (PCI) eased from a 3½-year high of 57.6 in January to 57.4 in February. Readings above 50 indicates an expansion of activity.

• Overall construction activity rose by 4.0 points to 61.4; new orders were down 8.5 points to 50.1; selling prices rose 6.7 points to 66.3 (record high); average wages lifted 3.3 points to 64.4 (2½-year high); input prices increased 3.8 points to 80.2 (2½-year high); and employment was up 4.7 points to 61.7 (6-year high).

• Activity in two out of four construction sectors lifted: Apartment building rose 21.2 points to 66.7 (3½-year high); house building climbed 10.2 points to 75.5 (record high); engineering construction fell 0.5 points to 52.8; commercial construction lost 8.0 points to 54.5.

• According to the AiGroup, “Residential builders said customers are still asking for their projects to commence ‘as soon as possible’ due to government grant eligibility. Some of the surge in demand for new houses is now flowing into apartments. Commercial builders noted an increase in demand for alterations from retailers, restaurants, offices and hospitals requiring new fit-outs or modifications in order to meet ‘COVID-19 safe’ operational requirements.”

IHS Markit Purchasing Managers’ indexes (PMI) – February

• The ‘final’ IHS Markit services purchasing manager index fell from 55.6 to 53.4 in February. The composite index, which measures combined services and manufacturing output, eased from 55.9 to 53.7 in February. Readings above 50 indicates an expansion of activity.

• IHS Markit economists reported, “The Australian services sector remained well inside expansion territory in February, despite softer increases in both activity and new orders. Businesses commented that the easing of broad COVID-19 restrictions had boosted demand and activity, although noted that the brief tightening of restrictions in Victoria state had slightly dampened business conditions. Nonetheless, service providers were encouraged to further expand staffing levels. Moreover, the pace of job creation was the fastest on record, linked by firms to sustained improvements in demand conditions. The outlook for the Australian services economy remains positive, with expectations for an expansion in activity sustained at high levels. Businesses were hopeful that international restrictions would be eased more widely and trigger a wider recovery in activity, with additional support from new product launches.”

What is the importance of the economic data?

• 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.

• The ABS data Weekly payroll jobs and wages “provides indicative information on the economic impact of the COVID-19 coronavirus on employees, including changes in employee jobs, changes in total wages, and changes in average weekly wages per job.”

• 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). IHS 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?

• Has there been an inflation revival in the real economy? Well in the better performing sectors of the Aussie economy, where demand is strong, business owners would argue there is. In fact, in the AiGroup survey in February the index for input prices hit 2½-year highs amid strong demand for building materials and supplies. And in the IHS-Markit economists reported, “input price inflation continued in the latest survey period, as average cost burdens faced by firms in the Australian service economy increased for the ninth month in a row. The latest increase accelerated from January and was the fastest registered since July 2018.” And look out for rising wage costs in the strongly performing construction and mining industries amid skills shortages.
Important Information

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Published by Ryan Felsman, Senior Economist, CommSec