The December financial aggregates released by the Reserve Bank yesterday have again led to predictable calls for an interest rate rise at next Tuesday's Reserve Bank meeting.
Commentators say the figures show that demand for credit has accelerated to levels last seen in the high-flying days of the late 1980s and this has further boosted the case for an interest rate rise.
But the high levels of business credit (housing is not a problem) are not new: they have been evident since midyear and really noticeable since the start of the credit crunch in August and September.
In fact, there was something of an easing in total credit growth in December.
The RBA's figures show total credit rose by 1.1% in December – after that large 1.7% jump in November.
Economists had expected a 1.2% jump, so the outcome was below expectations.
And yet the calls persist because commentators, when looking at the figures for 2007, point out that while credit growth slowed in December compared with November, annual growth accelerated to 16.5% – the fastest pace since 1989.
Housing credit rose by 0.8% in December for an annual increase of 11.6%, down from the previous year's increase of 13.7%. In fact housing credit has barely budged from monthly rises of 0.8%-0.9% since July. There's just no real demand for new housing loans.
The annual rate in 2007 was sharply down on the 13.7% growth in housing loans in 2006.
Personal credit rose 0.9% in the month and 13.1% over the year. That's off a touch from November but up from the 11.5% recorded in the year to December, 2006. But that's hardly a cause for a rate rise.
In fact housing seems to be responding to the interest rates hikes last year, and the easing in the monthly growth figure for personal credit in December can also be explained by the impact of November's rate rise, and the lift in other rates by lenders responding to higher funding costs from the credit crunch.
No the big mover, as it has been for all of 2007 was business credit: up 24.3% in the year to December after a rise of 1.6% in the month.
That's considerably faster than the 15.7% recorded in the year to December 2006.
So, on the face of it, that's bad. Much of this money has been financing the resources and construction booms in WA, but there's another explanation.
Business credit only really accelerated from July-August and really took off from September.
The driver seems to have been the credit crunch as corporate underwent a bit of "re-intermediation": an ugly word that means corporates went back to their banks for money after winding up loans from other sources.
Investment bank, Goldman Sachs JBWere explained it nicely earlier in the week:
"Contrary to intuition, the recent credit crunch has actually seen an acceleration in lending by banks to the business sector. Total business credit has grown 23.6% over the past year (to November), a 19-year high.
"We stress however that the re-intermediation of off balance sheet assets has exaggerated lending trends.
"Adjusting for the fall in debt that Australian companies have issued in their own name in recent months, total business debt has clearly rolled over.
"Meanwhile, growth in credit extended to the household sector continues to moderate. At 11.6%yoy mortgage credit growth is at a 9-year low."
That didn't change in December, so housing finance is running at a 9 year low and business finance is at a 19 year high, driven by companies refinancing loans with their banks.
That doesn't mean interest rates should rise next week.
Inflation figures as shown in the recent consumer price index and those from the RBA might justify a rate rise, but not those credit numbers.
Meanwhile there was evidence of how the sedate growth in housing credit is not impacting housing from December new home sales from the Housing Industry Association.
The HIA says new home sales fell in December, the second consecutive monthly decline, as higher interest rates bit.
Overall sales of new homes and apartments fell by 1.3% in December but once again the split nature of the market was revealed.
Sales of apartments grew by 5.1% in the month but there was a 2.9% fall in the sale of detached houses.
That mirrors the trend in housing finance and building approvals where there seems to be greater strength in recent months in the apartments and home units sector than in stand alone housing.
HIA chief economist, Harley Dale blamed a massive undersupply of housing for the fall in sales, adding that prices pressures on existing houses and rents would continue unless an additional 20,000 dwellings were constructed each year.
He said the residential construction industry is currently building approximately 150,000 residential dwellings a year when around 170,000 a year were needed just to meet demand.
New home sales declined by a further 0.3% in 2007, the fourth weak year in a row.
"The new home building sector is in danger of enduring a fifth straight year of weakness in 2008 given continued upward pressure on domestic interest rates," Mr Dale said.
