News

Australians appear to have gone on a food binge according to the latest retail sales figures for October. Increased spending on food in cafes and restaurants, as well as food items purchased from supermarkets, grocery stores and convenience stores, accounted for around three-quarters of the overall increase in total retail sales during the month.

Total retail sales (seasonally adjusted) increased by 0.5% in October, after rising by 0.1% (revised up from 0.0%) in September. On a year-on-year basis, sales grew by 1.8%, up from the 1.5% annual rate recorded in September. These latest figures put an end to the string of months in which the annual growth rate has fallen.

The figures were more than the 0.3% increase which was expected and bond yields and the Aussie dollar jumped on the news. 3 year bonds ended the day up 7bps at 2.03% while 10 year bonds finished 6bps higher at 2.62%. The local currency jumped from just above 76 U.S cents to as high as 76.55 U.S. cents before easing back to around 76.40 U.S cents.

The Melbourne Institute’s Inflation Gauge is an attempt to replicate the ABS consumer price index (CPI) on a monthly basis instead of quarterly. It has turned out to be a reliable leading indicator of the CPI, although there are periods in which the Inflation Gauge series and the CPI have diverged, only for the two series to eventually converge over the space of six to twelve months.

During November, the Inflation Gauge increased by 0.2%, which takes the annual rate to 2.7%. In October, the comparable figures were 0.3% and 2.6%.

Markets barely reacted to the figures and yields on 3 year and 10 year bond futures were only a little higher by the end of the day. The 3 year yield was 2bps higher at 1.97%, the 10 year yield inched up 1bp to 2.56% and the local currency slipped to just under 76.00 U.S. cents.

ANZ’s job advertisement survey is well-known as a leading indicator of employment numbers in Australia. It reflects changes in demand for labour and it provides another measure of activity in the economy. There is also a fairly good inverse relationship between changes in Australia’s unemployment rates and changes in the RBA cash rate. Understanding the path of Australia’s unemployment rate has historically provided a reliable indicator of RBA rate changes.

November’s figures have been released and, after revisions, total advertisements were 1.7% higher at 172,395 (seasonally adjusted), up from October’s revised figure of 169,577. On a 12 month basis, job advertisements were 11.2% higher while October’s comparable figure was 12.5%.

ANZ Head of Australian Economics David Plank said Australia’s employment market is likely to improve. “Another steady rise in ANZ Job Advertisements in November along with other leading indicators suggests a positive outlook for the labour market, particularly given the solid prospects for economic growth.”

The inverse relationship between job advertisements and the unemployment rate is quite strong (see below chart). An increasing number of job advertisements as a proportion of the labour force should lead to lower unemployment rates in the near-future.

Aside from engineering and architectural design, one of the earliest requirements of a building project is to obtain approval from the relevant statutory body. As a result, building approvals data is a leading economic indicator of future construction. While not all projects which have been approved are completed, all completed projects will have been granted approval. Approvals data thus provides a useful indicator of future construction.

The latest building approval figures have been released by the Australian Bureau of Statistics and they show a small rise in October. Compared to September, total October dwelling approvals were 0.9% higher. On a 12 month basis, total approvals were 18.4% higher than in October 2016.

House approvals rose by 1.9% in October, which translates to a 6.0% rise over the previous 12 months. Apartment approvals are a lot more volatile (see chart below) and they fell by 0.2% when compared to September. However, due to a dramatic fall in October 2016, apartment approvals in this October are 37% higher than last year.

The pace of lending to the non-bank private sector by financial institutions in Australia eased back a little in October. Lending to home owners continued to be the main driver of total loan growth while the rate of growth in lending to the business sector remained well below its long-term average.

According to the latest RBA figures, private sector credit grew by 0.4% in October, up from the 0.3% growth rate recorded in September. The year-to-October growth rate of 5.3% slipped from September’s comparable figure of 5.4% (after revisions) as personal loans contracted and business and investor loans grew at about the same rate as inflation.

The overall increase was driven by owner-occupier loans, which increased by 0.5% over the month or 6.3% for the 12 months to October. Business credit growth picked up from a 0.1% growth rate in September to 0.3% in October but at the same time, its annual growth rate dropped for the second month in a row, this time from 4.3% to 4.0%. These two segments of total lending account for nearly three-quarters of new loans by value and thus any change in them has a greater effect on overall credit growth.

In its latest economic forecast, the Organisation for Economic Development (OECD) has forecast a rosy picture for Australia during 2018. It expects the economy to “continue growing at a robust pace” on the back of higher business investment and net exports. Australia’s unemployment rate is expected to fall, household incomes and private consumption are expected to rise. Inflation and wages “will pick up gradually”.

While this all sounds good, there is a sting in the tail. The OECD expects the RBA to begin raising the official rate “in the second half of 2018 when the pick-up in wages and prices becomes more entrenched”.

The OECD appears to be in agreement with the RBA when it comes to “high house prices in large metropolitan areas” and “households being highly indebted”. The two organisation have both highlighted the twin issues of house prices and household indebtedness in various reports in recent months and both have come to the same conclusions; continued macro-prudential measures are required. “To contain risks associated with potential large house-price corrections and financial stress, macro-prudential measures should be maintained.” The combination of these policies and higher rates are expected to “ease pressures on house prices” and reduce “other financial distortions”.

The Conference Board describes it Consumer Confidence Index as a “barometer” of the U.S. economy from a consumer perspective. The index is one of two U.S. consumer sentiment indices, the other being the University of Michigan’s Consumer Sentiment Index. The Conference Board’s index is based on perceptions of current business and employment conditions, as well as expectations of business conditions, employment and income six months into the future.

The latest survey indicates U.S. consumers think conditions are not just good, but very good. The overall index increased from a revised October reading of 126.2 to 129.5 in November.  As Lynn Franco, a director at The Conference Board put it, consumer confidence is at a 17 year high.

Sponsored by Laminar Capital

Warwick Credit Union Limited has launched a $6 million perpetual, convertible, unsecured, subordinated notes issue.

Warwick Credit Union was formed in 1970 to provide a range of financial services to its members. Today it offers a full suite of services including home, car, personal and business loans, transactional and savings accounts, and motor, travel and personal insurance. It has over 10,000 members and 40 staff who service the local community.

Laminar Capital is mandated as the sole lead manager with applications available to be lodged at bondhub.com.au

Details of the issue are as follows:

Issuer:  Warwick Credit Union Limited

Face Value:         $100.

Offer Opens:     6 November 2017

Offer Closes:     6 December 2017

Issue Date:       15 December 2017

Optional Redemption Date:  15 December 2022

Format:             Perpetual, convertible, unsecured, subordinated

Size:                   $6 million

Gross Coupon Margin/Yield: 3 month BBSW + 6.30% (Yield of 8.01% as at 13 November 2017)

Franking Included: Yes

The value of construction work jumped by an astronomical 15.7% in the September quarter, the second quarter in a row where the value of construction work has grown by outsized amounts. Compared to a year ago, September quarter construction was 30.1% higher, another jump from June’s 12 month revised 7.7% growth rate.

The large increase follows June quarter’s 9.8% increase (after revisions). June quarter figures were inflated by an additional $4.7 billion of engineering construction, thought mostly accounted for by a floating LNG platform. September engineering construction was up an additional $8.5 billion and ANZ senior economist Felicity Emmett thinks the Ichthys and Prelude plants were behind the increase. “Excluding these, our estimate is that construction work done was broadly flat.”

Westpac and the Melbourne Institute describe their Leading Index as a composite measure which attempts to estimate the likely pace of economic activity relative to trend in Australia. The index combines certain economic variables which are thought to lead changes in economic growth into a single variable. This variable is claimed to be a reliable cyclical indicator for the Australian economy and an indicator of swings in Australia’s overall economic activity.

For the last four months, the Leading Index has returned values which implied below-trend growth in the near future. However, in what may turn out to be a boost for job-seekers and businesses, the indicator moved up into positive territory in October. The latest reading was at 0.44%, a level last seen in May.

September’s reading was revised up from -0.21% to -0.02%.