Data out yesterday added to the view that the Australian economy is doing better than many so-called experts think.
The first National Australia Bank survey of business confidence and conditions revealed a sharp improvement in the latter, while the RBA’s lending data was more subdued, but showed business lending remained solid in December.
But there was further evidence of problems in the home loan market that will need addressing according to the AMP’s chief economist, Dr Shane Oliver.
The December NAB business survey showed business confidence remaining reasonable at +6 and business conditions improving significantly to a strong reading of +11, which in part reflected strength in trading, profits and new orders.
The AMP’s chief economist, Dr Shane Oliver says “Business continues to remain more confident than are consumers, but the rebound in business conditions adds to confidence that the September quarter downturn in GDP reversed in the December quarter."
The NAB said that "Business conditions saw an impressive rebound this month, largely unwinding the steady downward trend seen since mid-2016. The business conditions index (an aggregation of trading conditions (sales), profitability and employment) jumped 5 points, to +11 index points, which is well above the long-run average for the series (+5).
"Meanwhile, business confidence has been quite steady over the past year, and December was no different. The confidence index was unchanged at +6 index points, consistent with the long run average.
NAB’s Chief Economist, Alan Oster, said in the NAB release “the rebound in business conditions is certainly encouraging, but at this stage we are not getting too carried away with the result.”
"Stronger business conditions in December largely reflected unexpectedly strong improvements in some industries, which might not be sustained, while other indicators were generally mixed as well. As for business confidence, the stability we have seen for some time now has been welcome, but it does not fully reflect the strength in business conditions. That might suggest that business still has a high degree of concern about global uncertainties in particular”.
“Within business conditions, the jump was completely driven by higher trading conditions and profitability, while the employment index was unchanged at relatively subdued levels.”
According to Mr Oster, “employment conditions have remained stubbornly muted and suggest the labour market is still not generating enough jobs to bring the unemployment rate down from its elevated level. That said, the employment index does point to stronger employment growth than we have been seeing from the ABS Labour Force Survey of late”.
“The headline results from the Survey indicate some upside risk to the outlook, but the mixed results below the surface suggest a degree of caution is warranted. Importantly, we are not seeing any real signs of a convincing recovery in non-mining investment in the Survey, which is crucial to both near-term and longer-term growth prospects” said Mr Oster.
Looking at the lending data from the RBA, Dr Oliver saw problems in home lending.
He said that "while housing credit growth was unchanged at 0.5%mom or 6.3%yoy in December, what is concerning is a continued deceleration in owner occupier housing credit (to +0.4%mom) relative to investor credit (which rose +0.8%mom).
"Over the last three months investor housing credit rose at an annual rate of 9% and is now rapidly approaching APRA’s 10% threshold. It is increasingly clear that the dampening impact of APRA’s 2015 macro prudential tightening has worn off to a significant degree.
“With household income growth in the economy running well below 10% yoy and the Sydney and Melbourne property markets continuing to run too hot in the face of ultra-low interest rates there remains a case for APRA to further lower the 10% growth threshold for property investor credit."
