Westpac and the Melbourne Institute describe their Leading Index as a composite measure which attempts to estimate the likely pace of Australian economic activity over the next three to six months. After reaching a peak in early 2018, the index headed lower through 2018 and into 2019 until it troughed in February. Since then, the index has shown signs of recovery, only to be reversed a month or two later.
The latest six-month annualised growth rate of the indicator has fallen back from July’s revised figure of +0.01% to -0.35% in August. These figures represent rates relative to trend-GDP growth, which is generally thought to be around 2.75% per annum. The index is said to lead GDP by 3 to 6 months, so theoretically the current reading represents an annualised GDP growth rate of around 2.40% in late 2019 and/or early 2020.
Westpac chief economist Bill Evans said, “The relapse confirms the consistent signal from most of those preceding months that the economy will continue to be operating at a below trend growth pace into late 2019 and early 2020.” He pointed to falls in the share market, lower commodity prices and fewer dwelling approvals as the major causes.
Commonwealth Government bond yields finished the day a touch higher, in spite of 4-5bps falls along the US Treasury curve in overnight trading. By the end of the day, 3-year ACGB yields remained unchanged at 0.83% while 10-year and 20-year yields had each inched up 1bp to 1.14% and 1.54% respectively.