Snapshot on the Australian economy – Decision on interest rates.

Keeping a record of recent economic statistics on major economies is a simple technique that I have found really useful as a trader and investor.

It has 2 benefits. Firsty, it allows me to look at trends in statistics. Secondly I can consider them all together to get a big picture view on the economy. I find this simple device is a big advance on just looking at each day’s headline number as it comes along.

As we head into today’s RBA decision, I thought readers may be interested in a summary of recent Australian statistics and some comments.

Summary Table

To keep things brief, I’ve limited the table below to a personal selection of figures that I think provides a reasonable overview of what’s been going on in the economy.

I’ve also outlined a few additional statistics and comments under the table

 

6 Month Average

4 Month Average

Latest Number

Comment

Retail Sales

3.2%pa

6.9%pa

+0.2% April Trend improving and 4 month average showing good growth

Building Approvals

0.4%pa

13.8%pa

+9.1% April Showing signs of picking up from low base

Motor Vehicle Sales

-4.2%pa

-13.5%pa

-1.6% April Now weakening after gains from pent up demand in 2012

Private Sector Credit Growth

2.6%pa

2.7%pa

+0.3% April Just ticking over. Households are paying off debt and businesses remain cautious

Monthly Trade Balance

-$959m

-$403m

+$307m March Recent trend improvement a plus for March GDP but risk to the downside with lower iron ore price

 Monthly Employment Growth

21000

27000

+50000 April Strong growth but some doubt about these stats. They appear at odds with other employment indicators e.g. Job Ads

Performance of Manufacturing Index (PMI)

43

43

43.8 May Manufacturing makes up only 9% of economy but remains weak with trend flat and well below 50 benchmark that divides contraction from growth

Nab Business Conditions Index

-5

-5

-6 April Business conditions remain weak. Persistent weakness in forward indicators of demand.  This index was between +10 and +20 for most of 2003/2007

Other Numbers

Private Capital Expenditure fell 4.7% in the March Quarter with mining down 6.2%. While the survey of investment intentions for the year ended June 14 (F14) was actually a bit higher than the previous survey, it’s still about 10% below the same estimate for F13. There is little doubt that reduced investment will be a significant negative for the economy in coming years.

Fiscal tightening. Most analysts estimate that tighter govrnment budget finances will have a negligible impact on the economy in F14. However, based on the latest budget it will begin to bite in F15. Then it will reduce GDP growth by around 0.5%. The RBA is unlikely to be too concerned about this until we get closer toF15.

Aussie Dollar. AUDUSD has fallen about 8% since early April.  Over the medium term, a weaker Aussie does not usually stop the RBA from cutting rates. Indeed the slower economic growth that creates the need for lower rates tends to see the Aussie falling at the same time. Things are a bit different at the moment though. The Aussie has remained stubbornly high despite our weakening terms of trade. Getting it lower has quite likely become a policy objective for the RBA. Now that the Aussie has begun to trend lower, the RBA may be content to see what develops from here before taking further action.

Inflation. There are various measures of inflation but most are in the middle to lower part of the RBA’s 2-3% target range. This will allow it to keep cutting rates if it sees fit.

GDP growth forecasts. Naturally there are a range of forecasts but the recent OECD estimates of 2.6% for 2013 and 3.2% in 2014 would be pretty representative.

Conclusion

The RBA makes it pretty clear that growth in other areas of the economy will need to improve significantly to replace the hole left by the looming drop in mining investment. The inflation outlook gives them scope to cut rates further and with rates at 2.75% they have room to move.

However, the recent solid lift in retail sales and building approvals plus the lower Aussie Dollar will be encouraging for the RBA. While these trends continue the Board is likely to take a wait and see attitude to assess the impact of the stimulus it has already provided.

About Ric Spooner

Over 30 years market experience - professional trader, broker, director
This entry was posted in Bonds, Forex, Market, Trading and tagged , , , , . Bookmark the permalink.

2 Responses to Snapshot on the Australian economy – Decision on interest rates.

  1. Peter Fagan says:

    Hi Ric, thank you for the synopsis. Have you a central reference where to extract these data from or is this a matter of collating from multiple sources? Do you have recommended AUS refs where I can start exploring? Thanks

    • Ric Spooner says:

      Hi Peter,

      Most of these statistics are availalbe on the economic calendar on our trading platform

      Regards
      Ric

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