The Reserve Bank sat on its hands for yet another month, leaving the cash rate steady at 2.5%, despite the first evidence emerging for stronger than expected September quarter economic growth.
The Bank’s Governor Glenn Stevens continued the policy of sitting and watching for signs the record low interest rates are gaining hold in the wider economy and outside of property (where the biggest impact has been well understood).
“In the Board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates,” the statement concluded using a form of words unchanged now for six months.
So far this week we have seen reasonable home building approvals data (once the volatile ‘other private dwellings’ are accounted for), stronger than expected retail sales, better trade figures for the quarter than forecast, solid house price growth, but weaker than forecast labour force figures which were confirmed yesterday by revisions from the Australian Bureau of Statistics.
The revised ABS jobs data up to September (designed to correct for recent seasonal adjustment problems at the ABS) now shows a slightly weaker jobs market over the last two months than previously reported with unemployment now drifting up to 6.2% (revised from 6.1%). But the previous peak of 6.4% in July has disappeared, although the jobs market is weaker.
The AMP’s chief economist Dr Shane Oliver says this shouldn’t really be a major shock and is unlikely to have any implications for interest rates. Forward looking labour market indicators such as ANZ job ads point to some improvement ahead (as we saw with the October jobs ads report on Monday).
The October jobs data tomorrow will include revisions back to last December (and the jobs series will be revised all the way back to 1978 to take account for the new method of seasonally adjusting the raw data).
The trade deficit grew in September and came in worse than expected at $2.26 billion, thanks to falling prices for iron ore, coal and other commodities clearly weighing on export values and offsetting any positive contribution from the lower value of the Aussie dollar (which remains under 87 USc this morning).
The lower dollar helped lift the value of imports by around 6% in September.
The Australian Bureau of Statistics said that, in seasonally adjusted terms, trade deficit jumped 123% from a revised $1.01 billion in August to nearly $2.3 billion in September.
The ABS said the total value of goods and services exports was up about 1% to $26.5 billion in September from August, while the value of imports climbed 6% to $28.7 billion.
The export of non-rural goods, which covers minerals and energy, fell 3%. The ABS said the value of exported ores and minerals was down 6%, or $403 million, while coal revenues dropped $170 million, or 6%.
However, the good news from the trade data is that stronger export volumes are pointing to roughly an 0.7 percentage point positive contribution to September quarter GDP growth.
So with the 1% growth in retail sales volumes in the quarter, the September quarter GDP number is looking solid.
“In Australia, most data are consistent with moderate growth in the economy,” Mr Stevens said in his statement yesterday.
"Resources sector investment spending is starting to decline significantly, while some other areas of private demand are seeing expansion, at varying rates.
"Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend for the next several quarters.
"Recent data on prices confirmed that inflation is running between 2 and 3 per cent, as expected, and this is likely to continue. Although some forward indicators of employment have been firming this year, the labour market has a degree of spare capacity and it will probably be some time yet before unemployment declines consistently.
"Hence, growth in wages is expected to remain relatively modest over the period ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate.
"The exchange rate has traded at lower levels recently, in large part reflecting the strengthening US dollar. But the Australian dollar remains above most estimates of its fundamental value, particularly given the further declines in key commodity prices in recent months. It is offering less assistance than would normally be expected in achieving balanced growth in the economy.
"Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years,” Mr Stevens said.
