Is there a bit more underlying strength in the economy than it seems and is that going to be sustained, or will it end up being a temporary blip and run out of puff in 2022?
Certainly the trade account looks much stronger than it looked just a month ago – the slump in iron ore prices has been more than offset by the surge in prices for coal and LNG – all benefiting from China’s silly ban on Australian coal exports in 2020 and heavy handed attempts to lower China’s carbon emissions.
The 1.7% slide in retail sales in August was better than market forecasts for a fall of 2.5% and came in the midst of the lockdowns in NSW, Victoria and the ACT (where retail sales fell 20% in the month off a small base).
On Thursday the Australian Bureau of Statistics August building approvals data surprised with a sharp rise instead of another month of weakness, while Reserve Bank credit data for August showed another large forecast rise in lending activity, with some of that again driven by investors.
At the same time, job vacancies for the three months to August fell but were still well above a year earlier, another sign of the underlying health of the labour market.
Dwelling building approvals unexpectedly rose 6.8% August, leaving them still down -20.2% from their HomeBuilder subsidy driven high in March but up 31.2% on a year ago.
House approvals rose a 3.8% and volatile unit approvals rose 12.7%.
The value of alterations and additions to dwellings rose 10% (to $1.11 billion, the second highest amount after April, 2021 when the value hit $1.13 billion) and the value of non-residential approvals rose 43.8% but that was after a sharp fall in July.
The AMP’s Dr Shane Oliver said in a note that:
“Despite all the volatility in approvals they remain at historically high levels particularly for houses and the lagged impact of the surge in approvals up until recently points to a further rise in dwelling construction activity over the remainder of this year.
“However, next year risks seeing weaker home building reflecting the pull forward of activity due to HomeBuilder and reduced demographic demand after two years of zero immigration”
The RBA data showed private sector credit rose a stronger than expected 0.6% in August and is up 4.7%% year on year. Housing credit was up an annual 6.2% (nearly double the annual rate a year ago of 3.2%) and business credit was up 3.4%
Annual housing credit growth accelerated further in August to 6.2% year on year as owner occupier credit rose an annual 8.4% and investor credit rising 2.2%.
While the monthly pace of housing credit is down slightly from its June high, at 7.4% annualised it remains very strong and well above underlying household income growth.
The monthly pace of growth in housing debt is also continuing to run above the 7% annualised pace that it was when APRA first moved to tighten lending standards in late 2014.
The AMP’s Dr Oliver said that “while it’s coming a bit later than we expected, financial regulators are now starting to express concern about rising levels of household debt relative to income and APRA now looks likely to use macro prudential controls to slow down housing lending growth from later this year.”
“Unlike last time around investors are now playing smaller role in the surge in home lending this time – so the regulatory focus is likely to be broader this time around focussing on measures to restrict lending to high debt to income ratio and high loan to valuation ratio borrowers and increased interest rate serviceability buffers.”
Job vacancies fell between May and August 2021 but were still 46% above the start of the pandemic, according to new seasonally adjusted ABS figures.
Bjorn Jarvis, ABS head of Labour Statistics said in a statement that “The fall in job vacancies in August 2021 coincided with lockdowns in place in New South Wales, Victoria and the Australian Capital Territory, and followed lockdowns in Queensland and South Australia. It was the first drop in vacancies since May 2020, during the initial wave of COVID-related lockdowns and restrictions.
“There were 334,000 job vacancies in August 2021, which was 36,000 less than in May 2021. However, this was still 106,000 more than at the start of the pandemic.
“The percentage of businesses reporting at least one vacancy fell from 22 per cent in May 2021 to 20 per cent in August 2021. This was still much higher than February 2020 (11 per cent), before the start of the pandemic, and many businesses continued to report difficulties in filling their vacancies,” the ABS said.
