Housing’s slide continues and business confidence levels are weakening as well as the Reserve Bank continues to push down demand to slow the economy and inflation.
It is having an impact across more and more of the economy: as well as the likes of Boral downgrading earnings because of sluggish housing activity here and in the US last week, investors will have to pay close attention to other corporates, according to leading brokers, Goldman Sachs JBWere.
They told clients yesterday before the worst housing finance figures in three years were released, that Friday’s Monetary Policy Statement from the RBA was bad news for corporate profits with the bank aiming to slow domestic non-farm GDP growth to around 1.75% by the end of this year against around 4% at the end of 2007.
"In particular, we expect that the growth gap that now exists between a bearish RBA and consensus will be closed in the coming weeks, as consensus growth expectations are revised down. Our view is that this process will entail significant downgrades to Australian equity analysts’ EPS forecasts," Goldman Sachs told clients yesterday.
"There are significant downside risks to Australian equities as growth slows and higher inflation eats away at company profits. Indeed, the RBA’s own growth forecasts are now as bearish as our own, highlighting the very real risks that a "hard landing" poses for Australian equities," Goldman’s added.
The slide in housing finance in March confirmed the earlier poor building approvals figures, also for March.
The ABS found no good news in the housing finance figures. Every major indicator was down. Housing is following the script developed by the Reservbe Bank with its tightening on monetary policy. Along with retail sales, housing is an early indicator when interest rates rise to slow the economy and crunch inflation and the pain will spread.
And we are seeing that now in housing: across the board.
fter falling a revised 6.8% (5.9% originally) in February, the Australian Bureau of Statistics reported that housing finance in March fell 5.3% from February, led by steep falls in both owner occupied and investment housing.
"In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions decreased 5.3%. Investment housing commitments decreased 7.2% and owner occupied housing commitments decreased 4.4%," the ABS reported.
The ABS said the number of refinancings of existing loans fell 6.0% in seasonally adjusted terms, another indicator of the draining away of confidence of borrowers.
The number of owner-occupier loans secured in March fell by a seasonally-adjusted 6.1% compared to February to 59,371. The total value of housing finance fell by a seasonally-adjusted 5.3% in March to $20.202 billion.
The fall is five times that estimated by the market and by economists at Goldman Sachs JBWere. They were both going for a fall of 1%. It is the lowest since August, 2005
Before the ABS release yesterday morning, Merrill Lynch cut its estimate of new homes to be built this year.
"The sharp rise in mortgage interest rates since November (115bp) is taking a toll on new housing demand. The marked deterioration in affordability, finance data for new construction and consumer sentiment towards new home purchase are all signalling a weaker profile for housing activity through 2008. We have downgraded our forecast for commencements to 148K in 2008 (from 155K) and to 155K in 2009 (from 165K)."
On top of this news, the latest National Australia Bank survey of business conditions and confidence had mixed news.
"After stabilising briefly in February/March, business confidence fell sharply again in April – down 4 to -8 points (from levels that were the lowest since Sept 2001)."
But the bank said business conditions remained unchanged at +7 index points last month – "at a level that is the lowest reading since December 2002".
"Profits and trading conditions fell by 4 and 3 points respectively, to +10 and +2 points (in both cases the lowest reading since early 2002). Reflecting a still tight labour market, employment rose 5 to +9 points;
"Forward orders fell sharply down 5 to -5 points – the lowest level since October 2001."
Not surprisingly, the NAB said that conditions and confidence in mining again improved and there was some improvement in finance confidence.
"Most other sectors saw falls in confidence – with large falls in retail and transportation. Conditions fell sharply in retail, finance, and personal & recreational services."
"One of the key messages from the April survey is that business confidence has taken another hit – and the April reading needs to be put in the context of the recent history, which saw some stabilising in confidence post the very sharp falls reported in January 2008.
"Also, while business outcomes are broadly unchanged, the combination of large falls in sales, profits and especially forward orders, do not bode well for near term growth. Worryingly, for the RBA, the Survey also paints a picture of sharply rising purchase costs, further acceleration in inflation and a touch higher wage outcomes with a still strong labour
