Three sets of economic data in the last 24 hours suggest the economy is performing along the lines anticipated by the Reserve Bank.
Despite a weak calendar 2013, the 2013-14 financial year proved better for economic growth than forecast, mainly courtesy of the strong March quarter. And the ABS’s write-down of the unemployment rate in August suggested the labour market had stopped deteriorating early in the new financial year. But the Reserve Bank’s August forecast expected the economy to dip a little for the rest of the calendar year, before growing more strongly over the course of 2015. Yesterday’s weak August retail sales data suggests that may be playing out: seasonally adjusted, sales rose 0.1%, after 0.4% in July and 0.6% in June. But department stores were, as usual, a major culprit, with sales falling 2.9%, the worst result since February; other sectors like food and cafes and restaurants (both up 0.3%) continued to perform OK.
At the same time, engineering construction data shows that infrastructure spending continues to decline off the end of the mining investment boom: data for the June quarter released yesterday showed another 2% decline in trend terms in the value of engineering work done. It wasn’t all the end of the resources boom though — public sector engineering work declined more substantially — 2.9% in trend terms, the sort of figure the federal government wants to turn around but which will be a slow process — it is likely to take years before the heights of the GFC stimulus-era public spending are again reached.
The engineering construction data, however, is now months old, and not overly helpful in providing an up-to-date sense of how the economy is faring. We learnt last week that job vacancies in August had continued their recent upward trend. And this morning saw good news on housing approvals: total dwelling unit approvals rose in both seasonally adjusted and trend terms. For a second successive month, there was a solid rise of 3.0%, seasonally adjusted, thanks to a rise in the volatile “other private dwellings” series (units, townhouses etc) 0f 9.6%. That more than offset a fall of 1.8% in private house approvals (which were up 1.3% in July). It seems that while low interest rates are feeding more than is desirable into prices for existing housing stock in Sydney and Melbourne, they’re also driving housing construction, which is the point of the RBA’s persistence with a loose monetary policy as engineering construction continues to return to more normal historical levels.
And the trade figures for August showed a fall in the size of the deficit, despite a fall in exports. Seasonally adjusted terms, the trade deficit in the month was $787 million, down 27% from the July figure. Exports fell 2%, but imports were down 3%. Exports of iron ore and coking coal performed well in the month, with shipments of iron ore fines (preferred by Chinese steel companies) up by more than A$1.2 billion.
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