Yesterday poor housing finance figures added to the downward pressure on official interest rates, so what happens with today’s jobs figures for July?
The market consensus is mixed on the employment figures from the Australian Bureau of Statistics, with some economists looking for 5,000 new jobs to be created, others as few as a couple of thousand or less, while a few are looking for a small loss.
If we do get a loss it will be the second in three months and will go a little way to confirming the slowing evolving trend of a slowing in jobs growth in response to the slowing of activity in the retail and building sectors.
We do know that the jobs figures can be lumpy (viz May’s 25,000-plus loss and June 29,800 gain) but from month this year, the employment market is softening.
Only only 44,000 new jobs were added in the June quarter, compared with the average of 74,000 over the previous eight quarters.
With recent job cut announcements at South Pacific Tyres, Holden in Melbourne, Qantas, Starbucks and Don Smallgoods, the news media is starting to be filled with more reports of corporate cost cutting and restructuring.
Corporate margins are under pressure from higher oil prices and interest rates and because it takes a longer time for momentum to develop in the labour market as employers try to hang on to employees (especially given the absence of well trained replacements), its likely we won’t see a significant increase in unemployment for a couple more months.
So with rate cut mania now possessing the market’s collective brain, yesterday’s housing finance figures are not as dramatic as the building approvals and retail sales numbers for June last week.
But home-loan approvals fell more than expected in June thanks to those high rates, oil prices and weak consumer confidence.
The number of home loans, seasonally adjusted, dropped 3.7% in June from May, according to the Australian Bureau of Statistics figures.
The total value of dwelling finance commitments excluding alterations and additions fell 0.9% in June, compared to May in seasonally adjusted terms.
The ABS said owner occupied housing commitments fell 1.1% and investment housing commitments were 0.3% lower.
Compared to the car industry which continues to show some growth, despite high interest rates and oil and petrol prices, the collapse in the housing sector is astonishing.
The one thing you could say about the housing sector, that its now at recession levels, so the bottom is probably closer than some think.
The ABS said the total value of owner occupied housing commitments (seasonally adjusted) fell 1.1% (down $141m) in June 2008, following a revised decrease of 5.2% in May 2008.
"The decrease this month was due to falls in the purchase of established dwellings excluding refinancing (down $95m, 1.3%), refinancing of established dwellings (down $83m, 2.2%), and construction of dwellings (down $27m, 2.5%), while the purchase of new dwellings rose (up $64m, 14.3%).
"The total value of investment housing commitments (seasonally adjusted) decreased 0.3% (down $15m) in June 2008 compared with May 2008, following a revised decrease of 6.1% in May 2008.
"The decrease this month was due to a fall in the construction of dwellings for rent or resale (down $102m, 15.2%), while rises were recorded for the purchase of dwellings by others for rent or resale (up $79m, 13.3%) and the purchase of dwellings by individuals for rent or resale (up $9m, 0.2%)."
The jobs figures for July will also give us a first glimpse of what conditions were like in the economy in July and the start of the third quarter.
We now know that June was tough in retail and the building industry, and rough on consumer confidence, but not on the car industry where sales (and local production) are proving to be remarkably resilient.
But while there’s an emerging consensus that the Reserve Bank will not only cut interest rates after its September 2 meeting, but cut by 0.50%, I’d still be watching the weakening Australian dollar.
As world oil prices have sunk under $US120 a barrel since July 11’s peak of $US147.27, the Aussie dollar has fallen from its peak of just over 98 US cents to a soft 91.50 yesterday (and just under 92 US cents last night).
All thoughts of parity by Christmas have and along with that some of the gains from the sinking oil price are also disappearing as the Aussie dollar falls.
That will clip a small part of the flow through to local petrol prices over the next week.
There could be a very real chance that as oil falls further and drags other commodity prices down as well, the falling value of the Aussie dollar could start adding an unwanted inflationary overlay to the economy.
The Aussie’s fall will be accelerated by the RBA’s rate cuts, so at some stage hopes for rate cuts of up to 1.25% could be truncated, if the currency falls too quickly under 90 US cents.
But we will get a rate cut next month and there’s every chance it could be half a per cent to start, with the bank then sitting and waiting until November or December, especially if the dollar drops well under 90 US cents as a result.
A cut that large would have the added benefit of putting enormous pressure on the banks to give back some of their extra rate rises.
Some analysts question whether the banks will move, arguing their funding costs remain elevated, but the key bank bill swap rate in Australia has moved down sharply in the past month with the 90 day rate falling 0.20% and the 5-year falling 0.54% since the first week of July.
(If another US bank was to stumble, those rates would again firm, but absent that, there’s a clear downward trend establi
