Australia | Sep 09 2009
By Chris Shaw
Australian consumer sentiment data announced today were strong but other economic releases proved mixed, with July housing finance figures falling modestly and retail sales for the month also declining.
In terms of the housing numbers, the number of loans declined by 2.0% in the month, but as Commonwealth Bank senior economist John Peters notes, this is still a solid result given it is only a modest fall from the record result recorded in June. The overall value of new loans fell 2.3% to $22.5 billion, but remains 24.3% higher over the year.
First home buyers accounted for 25.7% of the total loans, down slightly from the previous month. ANZ Economist Riki Polygenis notes much of the slack was picked up by those in the upgrader or non first home buyer sector.
CBA’s Peters notes the first home buyer category remains well above its 12-year average of 20.8% of all loans and he sees this trend as continuing for some time given mortgage payments for first home buyers at present are close to average monthly rental payments.
According to Peters, the result confirms the underlying resilience of housing sector activity in recent months, with the sharp rise in housing lending without a correspondingly significant increase in supply pushing up prices and auction clearance rates in the market. These underlying trends are likely to continue for some time in his view.
Westpac also sees a positive outlook for the housing market as the finance numbers still suggest a solid upswing in housing construction activity in coming months, which the bank sees as a major growth driver for the economy late this year and early in 2010.
The biggest let-down in the housing finance numbers according to Westpac was the 4% fall in lending to investors, which the bank suggests shows this class are yet to re-enter the market in a major way. ANZ’s Polygenis suggests today’s housing finance numbers don’t signal the end of the upturn in the sector, but it does indicate the first home buyer end of the market is cooling after recent strong gains.
Retail sales numbers were more disappointing, the 1.0% decline compared to market expectations of an increase of around 0.5% and following a revised decline of 0.8% in June, which itself was revised from a decline of 1.4%. According to Westpac, the result shows the underlying pace of retail sales is holding steady rather than offering signs of improvement, but this needs to be viewed in the context of the strong gains posted between March and May on the back of fiscal and monetary stimulus measures.
Polygenis suggests the fall in retail sales shows the Reserve Bank of Australia (RBA) was justified to be concerned about the outlook for consumer spending given the fading fiscal stimulus, though the volatility of the numbers means it is a little difficult to read too much into particular categories.
Leading into today’s data releases, ANZ had taken the view October was simply too early for the RBA to be moving to increase interest rates and on the back of the data Polygenis sees no reason to change this view given the data confirms the RBA was right to be concerned about the sustainability of factors such as consumer spending.
According to Westpac senior economist Matthew Hassan, the August retail data now become increasingly important when released at the end of this month as it will be the first figure where stimulus measures are unlikely to be a major influence.
Post today’s numbers the bank notes the Australian dollar was weaker, falling by around US0.5c, and it sees further falls as possible given the data add weight to the case for no hike in rates by the RBA next month.