Residential property prices rise 2.2 per cent

Residential property prices rose 2.2 per cent in the March quarter 2017, the fourth consecutive quarter of growth, according to figures released today by the Australian Bureau of Statistics (ABS).

Program Manager for Prices Branch, Marcel van Kints, said; “While residential property prices rose in most capital cities this quarter, Sydney and Melbourne continue to drive the national result.”

The price rises in Sydney (3.0 per cent) and Melbourne (3.1 per cent) were partially offset by falls in Perth (1.0 per cent) and Darwin (0.9 per cent).

Through the year growth in residential property prices reached 10.2 per cent in the March quarter 2017. Sydney recorded the largest through the year growth of all capital cities at 14.4 per cent, followed closely by Melbourne at 13.4 per cent.

The total value of Australia’s 9.9 million residential dwellings increased $163.1 billion to $6.6 trillion. The mean price of dwellings in Australia is now $669,700.

This ongoing rise may go counter to some recent data, although we note the CoreLogic data this week also shows rises in most centres, after recent softer data.

But of course the ABS data is prior to the recent regulatory interventions. As the HIA puts it:

“There is evidence that since March 2017 dwelling price growth has slowed following the introduction of additional restrictions by APRA and increased barriers to foreign investor participation imposed at federal and state level”.

So the next ABS series, due out in 3 months will be the one to watch.  Why do we need to wait so long for this data? The ABS is very slow to generate this particular series.

 

 

 

Trend Unemployment Unchanged, Again, But…

The May 17 trend unemployment remained at 5.7% according to ABS figures released today. Full time employment grew again, and participation was higher, but the trend underemployment rate, which is a quarterly measure of employed persons wanting more hours, increased from 8.7 per cent to 8.8 per cent between February and May 2017. Further pressure on household incomes.

Significant state variations remain, with trend unemployment in SA at 7.1% and NT at 3.2%; the former rising, the latter falling.

Monthly trend full-time employment increased for the eighth straight month in May 2017, according to figures released by the Australian Bureau of Statistics (ABS) today. Full-time employment grew by a further 19,300 persons, while part-time employment increased by 5,900 persons, underpinning an increase in total employment of 25,200 persons.

“Full-time employment has increased by around 124,000 persons since September 2016, with particular strength over the past five months, at around 20,000 persons per month,” said Chief Economist for the ABS, Bruce Hockman.

Over the past year, trend employment increased by 194,200 persons (or 1.6 per cent), which is still below the average year-on-year growth over the past 20 years (1.8 per cent). It has increased since December 2016, when the year-on-year growth was at 0.8 per cent and reflected relatively low employment growth through most of 2016.

The trend monthly hours worked increased by 2.9 million hours (0.2 per cent) to 1,677.7 million hours in May 2017. Most of this increase was hours worked by full-time workers.

The trend unemployment rate in Australia remained at 5.7 per cent in May 2017. The trend underemployment rate, which is a quarterly measure of employed persons wanting more hours, increased from 8.7 per cent to 8.8 per cent between February and May 2017.

“The underemployment rate is an important indicator of the spare capacity of workers in Australia, and has risen for the sixth consecutive quarter to a historical high of 8.8 per cent,” Mr Hockman said.

The trend underutilisation rate, which includes both unemployment and underemployment, remained at 14.5 per cent in May 2017.

Trend series smooth the more volatile seasonally adjusted estimates and provide the best measure of the underlying behaviour of the labour market.

The seasonally adjusted number of persons employed increased by 42,000 in May 2017. The seasonally adjusted unemployment rate decreased by 0.2 percentage points to 5.5 per cent, and the seasonally adjusted labour force participation rate increased slightly to 64.9 per cent.

“The trend unemployment rate has been relatively stable over the past 18 months, at around 5.7 to 5.8 per cent, while the seasonally adjusted rate has also been relatively constrained, between 5.5 and 6.0 per cent,” Mr Hockman said.

Significant state variations remain, with SA at 7.1% and NT at 3.2%.

The Great Lending Rotation Is Upon Us

The bumper edition of ABS data today, just before the long weekend included both the housing finance data and the lending finance data for April. Investor lending is on the turn now, and first time buyers are also retreating. The question now is what will this do to house prices, and the debt burden many households are currently under?

We think this marks a significant point of rotation for the housing market. However, business lending is not accelerating, leaving a significant growth hole in the economy.

Looking at the housing lending, overall lending flows fell 0.4% in trend terms from March, to $32.8 billion. Within that owner occupied loans fell 0.1% to $19.9 billion and investment lending fell 1% to $12.6 billion.

Refinance loans fell significantly, and the proportion of loans for investment purposes also fell.

Looking at the number of commitments, overall this fell by 0.5% to 53,062, with the purchase of new dwellings down 0.7% to 44,443. Purchase of new dwellings was down 0.1% to 2,755 and the construction of dwellings was up 0.6% to 5,864.

Revisions to the data have changed the trends, with owner occupied loans stronger, and investment loans weaker.

Looking at the stock of loans, overall values were higher again.

Owner occupied loans net rose $5.7 billion, or 0.56%, whilst investment loans rose $2.1 billion or 0.39%. Both Building Societies and Credit Unions saw a net loss in portfolio value.

In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 13.9% in April 2017 from 13.5% in March 2017. The number of first home buyer commitments decreased by 17.5% to 6,547 in April from 7,939 in March; the number of non-first home buyer commitments also decreased.

There was a big fall in the number of first time buyer commitments, offsetting the rise in the previous month.

We continue to track momentum in investor first time buyers, another 4,000 joined the ranks this past month.

The ABS says that in this issue, revisions have been made to the original series as a result of improved reporting of survey and administrative data. These revisions have affected the following series:

  • Owner occupied housing for the month of March 2017.
  • Investment housing for the month of March 2017.
  • Housing loan outstandings to households for owner occupation series for the periods January 2017 to March 2017.

 

Securitisation Still Going Sideways

The ABS released their data on Australian securitisers today. At 31 March 2017, total assets of Australian securitisers were $121.6b, up $4.4b (3.8%) on 31 December 2016.

Residential mortgages continue to make up most of the transactions and there was a small overall lift, but in the past year the value of mortgages fell 0.9%. So whilst the securitisation conduits are open, and pricing reasonable (if higher than pre-GFC), overall volumes are still well below their 2007 peaks. This is because other forms of funding are available, including direct investment. Most securitisation instruments are sold to Australian investors.

During the March quarter 2017, the increase in total assets was primarily due to an increase in other loans (up $1.9b, 12.0%), residential mortgage assets (up $1.3b, 1.4%) and cash and deposits (up $1.0b, 27.2%).

At 31 March 2017, total liabilities of Australian securitisers were $121.6b, up $4.4b (3.8%) on 31 December 2016. The increase in total liabilities was due to an increase in long term asset backed securities issued in Australia (up $7.6b, 7.8%). This was partially offset by a decrease in short term asset backed debt securities issued in Australia (down $1.9b, 42.0%) and loans and placements (down $0.6b, 6.4%).

At 31 March 2017, asset backed securities issued in Australia as a proportion of total liabilities increased to 88.6%, up 1.5% on the December quarter 2016 proportion of 87.1%. Asset backed securities issued overseas as a proportion of total liabilities decreased to 3.8%, down 0.3% on the December quarter 2016 proportion of 4.1%.

Growth Slowed in the March Quarter to 0.3 per cent

Data from the Australian Bureau of Statistics (ABS) shows the pace of growth of the Australian economy slowed in the March quarter to 0.3 per cent in seasonally adjusted chain volume terms. Through the year, GDP grew 1.7 per cent.

Investment in new housing fell by 4.4 per cent in the March Quarter 2017 which brings the sector down from record high investment in December 2016 and back to levels similar to those experienced at the start of 2016.

As Saul Estlake noted in The Conversation today:

It’s now been 103 quarters (25 years and 9 months) since Australia last had consecutive quarters of negative growth in real gross domestic product (GDP), in the March and June quarters of 1991.

Contrary to much-repeated claims, the Netherlands didn’t experience more than a quarter-century of economic growth without consecutive quarters of negative real GDP growth between the early 1980s and the global financial crisis.

The Netherlands’ real GDP declined by 0.3% in the June quarter of 2003, and by 0.01% in the September quarter of that year, according to data published by Statistics Netherlands and, separately, by the OECD. So, at best, the Netherlands went for only 22 years without experiencing a recession. Australia surpassed that benchmark in 2013.

Yes, that second quarterly decline in 2003 was almost imperceptible. But sporting records are delineated by margins as small as one one-hundredth of a second, so we can’t blithely discount a -0.01% fall in real GDP as “not relevant”.

Even if you blinked and missed that tiny second successive decline in real GDP in the September quarter of 2003, the Netherlands still wouldn’t hold the record for the longest run of continuous economic growth. That belongs to Japan – which, according to OECD data, went from the March quarter of 1960 to the March quarter of 1993 without ever registering two or more consecutive quarters of negative growth in real GDP. That’s 133 quarters, or more than 33 years.

Indeed, if Japanese GDP data were available on a quarterly basis earlier than 1960 it’s likely that this run of continuous economic growth would have been even longer, perhaps as long as 38 years, inferring from annual data available back to 1955. So Australia would need to avoid consecutive quarters of negative real GDP growth until at least 2024 if it is truly to be able to claim this “world record” as its own.

Even more importantly, the definition of a technical recession as (two or more consecutive quarters of negative growth in real GDP) is, as former RBA Governor Glenn Stevens said, “not very useful”. It was originally proposed in December 1974 by Julius Shishkin, who at that time was the head of the Economic Research and Analysis Division of the US Census Bureau (now the Bureau of Economic Analysis, which publishes the US national accounts).

It’s not used to identify recessions in the US. It takes no account of differences over time, or as between countries, in the rates of growth of either population or productivity – which are the key determinants of whether a given rate of economic growth is sufficient to prevent a sharp rise in unemployment. This is something which most people (other than economists) would use to delineate a recession.

While Australia has avoided consecutive quarterly contractions in real GDP since the first half of 1991, we’ve had two periods of consecutive quarterly declines in real per capita GDP (in 2000 and 2006). We’ve also had two periods of consecutive quarterly declines in real gross domestic income or GDI, which takes account of income gains or losses accruing from movements in Australia’s terms of trade (in 2008-09, and in 2014). Perhaps most meaningfully of all, Australia has had two episodes where the unemployment rate has risen by one percentage point or more in 12 months or less (in 2001 and 2009).

That’s still a better track record than almost any other advanced economy during the past quarter-century or so – and it reflects well on the quality of economic management (and the nature of our luck) over this period. Nonetheless, we shouldn’t be in the business of awarding ourselves prizes to which we’re not entitled.

And the long term trend also highlights a slowing, so we need new growth engines if we are to keep the growth ball in the air!

Growth was recorded across the economy with 17 out of 20 industries growing during the quarter. Strong growth was observed within the service industries including Finance and Insurance Services, Wholesale Trade, and Health Care and Social Assistance.

Agriculture, Forestry and Fishing decreased after strong growth in the previous two quarters, while Manufacturing decreased for the tenth time in eleven quarters.

Chief Economist for the ABS, Bruce Hockman said; “This broad-based growth was tempered by falls in exports and dwelling investment. Dwelling investment declined in all states, except Victoria, and overall is the largest decline for Australia since June 2009.”

Compensation of employees (COE) increased 1.0 per cent in the March quarter, a pick up from the negative growth recorded in the December quarter, and is consistent with other labour market data. COE is still only 1.5 per cent higher through the year, continuing to contribute to the reduction in the household saving rate. The household saving ratio fell to 4.7 in the March quarter, half the rate it was in March quarter 2013.

Mr Hockman said; “Even though there was a fall in dwelling investment this quarter, levels are still historically high. There was also positive growth in household consumption, albeit in non-discretionary items such as electricity and fuel purchases. The softer growth in household consumption is broadly in line with modest income growth.”

Current Account Deficit Narrows to $3.1 billion

For the third quarter in succession, higher export commodity prices contributed to a narrowing of the current account deficit in the March quarter 2017, according to latest figures from the Australian Bureau of Statistics (ABS).

The seasonally adjusted current account deficit fell $403 million (11 per cent) to $3,108 million in the March quarter 2017. In seasonally adjusted terms, the balance on goods and services surplus in the March quarter 2017 is the highest on record at $9,242 million. Exports of goods and services rose $4,852 million (5 per cent) and imports of goods and services rose $1,723 million (2 per cent). The primary income deficit widened $2,712 million (29 per cent).

In volume terms, imports grew this quarter while exports went down, and as a result international trade is expected to detract 0.7 percentage points from growth in the March quarter 2017 Gross Domestic Product. In seasonally adjusted chain volume terms, the balance on goods and services surplus decreased $2,966 million (85 per cent) to $543 million.

Australia’s net international investment position was a liability of $1,025.5 billion at 31 March 2017, a decrease of $2.7 billion on the revised 31 December 2016 position of $1,028.2 billion.

Australia’s net foreign debt liability decreased $13.6 billion (1 per cent) to a net liability position of $1,015.0 billion. Australia’s net foreign equity had a turnaround of $10.9 billion from a net asset position of $0.3 billion at 31 December 2016 to a net liability position of $10.6 billion at 31 March 2017.

Anemic Retail Sales Continues

The trend estimate for Australian retail turnover rose 0.1 per cent in April 2017 following a 0.1 per cent rise in March 2017. Compared to April 2016 the trend estimate rose 2.7 per cent according to the latest Australian Bureau of Statistics (ABS) Retail Trade figures.

There were rises in food retailing (0.2 per cent), cafes, restaurants and takeaway food services (0.2 per cent), department stores (0.4 per cent), and other retailing (0.4 per cent); whilst household goods retailing fell  (0.1 per cent) and clothing footwear and personal accessory retailing fell (0.4 per cent).

In April 2017, South Australia led the rise  (0.4 per cent), with rises also in Australian Capital Territory (0.3 per cent), Victoria (0.3 per cent), Tasmania (0.1 per cent), and New South Wales. Queensland and Western Australia did not change, the Northern Territory fell slightly. (0.1 per cent).

The more reported, but less reliable seasonally adjusted retail turnover rose 1.0 per cent in April 2017, following a fall of 0.2 per cent in March 2017, so look out for the “better than expected” commentary. We do not believe it.

Anyhow, for the records, in seasonally adjusted terms, there were rises in food retailing (1.2 per cent), cafes, restaurants and takeaway food services (1.1 per cent), department stores (2.5 per cent), other retailing (0.6 per cent), household goods retailing (0.4 per cent) and clothing, footwear and personal accessory retailing (0.3 per cent).

In seasonally adjusted terms there were rises in all states and territories. Queensland (2.4 per cent) led the rise, and there were also rises in Victoria (1.0 per cent), South Australia (1.1 per cent), Western Australia (0.4 per cent), New South Wales (0.1 per cent), Tasmania (1.2 per cent), the Northern Territory (1.8 per cent) and the Australian Capital Territory (0.9 per cent) in April 2017.

Online retail turnover contributed 3.4 per cent to total retail turnover in original terms.

Dwelling Approvals Rose A Little In April

The number of dwellings approved rose 0.1 per cent in April 2017, in trend terms, and has risen for three months, according to data released by the Australian Bureau of Statistics (ABS) today.

Dwelling approvals increased in April in the Australian Capital Territory (3.6 per cent), Queensland (3.4 per cent), New South Wales (1.7 per cent), South Australia (1.6 per cent) and Tasmania (0.3 per cent), but decreased in Victoria (3.2 per cent), Western Australia (2.3 per cent) and the Northern Territory (2.2 per cent) in trend terms.

In trend terms, approvals for private sector houses fell 0.2 per cent in April. Private sector house approvals rose in South Australia (2.0 per cent), Victoria (0.3 per cent) and New South Wales (0.2 per cent), but fell in Queensland (2.0 per cent). Private house approvals were flat in Western Australia.

The movements across states show an upswing in SA, slight rises in VIC, NSW and WA, and a sharp fall in QLD.

In seasonally adjusted terms, dwelling approvals increased by 4.4 per cent in April, driven by a rise in total dwellings excluding houses (8.9 per cent) and total house approvals (0.8 per cent).

The value of total building approved rose 2.5 per cent in April, in trend terms, and has risen for three months. The value of residential building rose 0.2 per cent while non-residential building rose 6.9 per cent.

“Dwelling approvals have been relatively stable in trend terms over the past three months, after falling from record highs in mid-2016,” said Daniel Rossi, Assistant Director of Construction Statistics at the ABS. “The April 2017 data showed that the number of dwellings approved is now 14 per cent below the peak in May 2016”.

Construction Work Falls In March Quarter

The ABS preliminary trend data shows a fall overall of 6.8% compared with a year ago to $46.2 billion. Within that residential construction fell 1%, non-residential construction fell 3.5% and engineering fell 12.4%. The trend for total building work was down 1.1% in the March quarter.

In fact only the public sector non-residential construction held momentum. In other words, it is government spending which is holding the number up, whilst private sector investment is falling.

Within the residential data new houses and other residential both fell.

Once again the lack of business investment is taking its toll. With housing coming off, growth looks more uncertain, and only Government spending on infrastructure can it seems can save the day (but at what cost?)

Unemployment Rate at 5.8 per cent for the Fourth Consecutive Month

The latest employment data from the ABS does not look too bad on first blush, it beat expectations, especially if you go for the wobbly seasonally adjusted series. However the continued rise in part-time employment (up 3.6%) compared with full-time (up 0.1%) highlights the problem with low take home pay, and when added to the falling wage growth in real terms, it explains why household finances are taking a battering, and why mortgage stress is up again.  Also significant differences if you compare WA with NSW.

Trend employment increased by 19,900 persons to 12,071,300 persons in April 2017, according to figures released by the Australian Bureau of Statistics (ABS) today. Total employment growth over the year was 1.3 per cent, which remains below the average growth rate over the past 20 years of 1.8 per cent.

Over the past year there was a larger increase in trend part-time employment (102,800) than full-time employment (49,300) – around two-thirds of the total increase in employment. This was considerably more pronounced in the trend hours worked, which grew by 3.6 per cent for the part-time employed, and 0.1 per cent for those employed full-time.

Australia’s trend unemployment rate remained at 5.8 per cent for the fourth consecutive month.

“For almost 18 months, the trend unemployment rate has been relatively stable, at around 5.7 to 5.8 per cent” said Bruce Hockman, General Manager of the ABS Macroeconomic Statistics Division. “We haven’t seen this stability since the May 2007 to October 2008 period, when it remained around 4.2 to 4.3 per cent.”

The trend participation rate increased by less than 0.1 percentage points to 64.8 per cent.

Trend series smooth the more volatile seasonally adjusted estimates and provide the best measure of the underlying behaviour of the labour market.

The seasonally adjusted number of persons employed increased by 37,400 in April 2017. The seasonally adjusted unemployment rate decreased 0.2 percentage points to 5.7 per cent, and the seasonally adjusted labour force participation rate remained steady at 64.8 per cent.

The comparison between the numbers in WA and NSW (the last and first placed states from an economic perspective) tells an interesting story.

Unemployment has been falling in NSW, and has turned the corner in WA, after a steady climb. However the participation rate in WA is significantly higher and is rising, whilst it is lower and falling in NSW. This reflects a range of factors, including demographic distribution, industry mix and part time work options.  The falling rate in NSW should be regarded as a warning of trouble ahead when it comes to looking at household finances.