Judging by the comments on Monday from Governor Glenn Stevens, the Reserve Bank has concerns the economy might be stronger than expected, but yesterday, it seems to be about where the RBA reckons it is, with no surprises, as yet, except perhaps for house prices rising faster than comfortable.
The figures yesterday for retail sales, building approvals and private lending for August were awaited with some eagerness.
But there was no joy for the bulls, while those who feel the economy isn’t getting warmer probably had some of their beliefs confirmed.
In some respects the broader economy remains very sluggish.
But watch housing: it seems to be more than just first home buyers with another strong rise in prices in August (see below).
The hot spot was the sharp 0.9% rise in retail sales in August which got the ‘rate rise looms’ gang out of their burrows and rabbitting on about how we could see the Reserve Bank lift rates as early as next Tuesday, and failing that, Melbourne Cup day, and failing that, an 0.25% rise from the December board meeting.
But news of the rebound in August from consecutive negative months for retailing in June and July would not have come as much of a surprise to the central bank and those whose hands are on that rate rise lever. They already had a feeling there had been stronger activity last month.
"Liaison with retailers suggested that household spending had softened somewhat in July but had been better in August, the RBA," the minutes from the September 2 board meeting noted.
Next Tuesday, when the board meets, they will have the same information from staff after talking to retailers (and the benefit of Roger Corbett’s inside knowledge as well on the board).
The rise in building approvals looked solid from owner-occupied housing (up 3.1%, the eighth successive monthly rise), but when the impact of an 11.7% slide in non-owner approvals was taken into account overall approvals fell 0.1%.
So that’s not a new unknown because that’s been the headline now for at least 8 months from the ABS figures, and from the RBA’s own private credit numbers which were also out yesterday.
They tell the substantive story about the state of the economy that the retail sales and building approvals can’t give.
In short bank lending is still weak, except for housing, and an uptick in personal lending, which looks like its linked to a rise in margin lending from more confident investors.
Total credit grew by just 2.5% in the year to August after rising just 0.1% from July (which was up 0.2% from June). The annual rate is the lowest for more than a decade and indicates that had it not been for the strong rise in owner-occupied housing, the credit would have contracted in August, and probably all of this year.
The total credit figure makes a mockery of those continuing assertions from the Federal Opposition that the government’s stimulus spending will force up interest rates. Apart from housing, which will start easing from tomorrow onwards as the first home buyers and new home builders grants are cut, there’s no demand for loans from anywhere in the economy.
The RBA said that housing credit increased by 0.6% in August, following a similar rise in July from June.
"Over the year to August, housing credit rose by 7.4 %. The rise in housing credit over August was due to growth in lending to owner-occupiers and investors.
"Owner occupier credit rose an annual 9.4% in August, thanks to the first home buyers’ credits.
"Other personal credit increased by 0.5% over August, following a fall of 0.2% over July. Over the year to August, other personal credit fell by 5.6%," the RBA said.
But the slump in business borrowing continues with the RBA figures showing a 0.6% fall in business lending in August from July, which was sharper than the 0.4% drop in July. The RBA said there was a 2.2% fall in business credit over the year to August.
There’s no sign of any crowding out in these figures which show the real state of business and consumer lending. Only the stimulus-generated surge in owner-occupied home lending is keeping overall credit positive.
At the same time the 11% fall in approvals for investor loans contained in the ABS figures confirms reports that developers of townhouses, flats and units are still finding it very, very tough to get finance for their projects from the banks.
The ABS said that retail sales rose (seasonally adjusted) by 0.9% in August 2009 after a revised fall of 0.9% in July 2009 and a decrease of 0.8% in June 2009.
"In seasonally adjusted terms, Food retailing (+1.8%), Household goods retailing (+0.9%), Department stores (+2.4%) and Cafes, restaurants and takeaway food services (+1.9%) had an increase in August 2009. Other retailing decreased 3.0% and Clothing, footwear and personal accessory retailing had no percentage change.
"In seasonally adjusted terms all states, except the Northern Territory (-0.7%), had an increase in August 2009. States with the largest increases were Queensland and Tasmania (both +1.4%), South Australia (+1.1%) and New South Wales (+0.8%)."
So watch housing after the news that the average house price rose 1.8% in August, according to RP-Data/Rismark.
The firm said that 1.8% rise was the strongest on record for this five-year-old series (it has been compiled since early 2005, so missed some big increases earlier in the decade).
