G’day, forex mates! If you wanna know how Australia’s economy is doing recently, or if you just wanna see the “bigger picture” ahead of the RBA’s monetary policy decision next week (Tuesday, June 7), then this economic snapshot may be just what you need.
Note: Like my other Economic Snapshots, there are nifty tables at the bottom, so you can skip to those if you’re a forex trader who’s in a hurry. The bullet points provided highlight the underlying details and trends that give the numbers their proper context, however.
- Australia’s GDP expanded by 1.1% quarter-on-quarter in Q1, which is much faster than than Q4’s upwardly revised 0.7% growth (0.6% originally).
- This is the fastest quarter-on-quarter expansion since Q1 2012.
- Year-on-year, GDP grew by 3.1% in Q1 2016, which is better than Q4’s 2.9% (revised lower from 3.0%).
- This is the fastest year-on-year expansion since Q3 2012.
- Also, annual GDP has been growing at an ever faster pace for three consecutive quarters now.
- Trade was the main driver for significant pick up in quarter-on-quarter GDP growth.
- Exports and imports effectively cancelled each other out in Q4 2015, but exports expanded by 4.4% while imports contracted by 0.8% in Q1 2016, so net trade had a positive contribution of 1.2% to quarter-on-quarter GDP growth.
- Household spending was robust and is still the backbone of the Australian economy since it expanded further by 0.7% (0.7% previous), adding 0.4% to quarter-on-quarter GDP growth, which is the same contribution as in the last three quarters.
- Private investment in non-residential buildings is still the major drag, dropping further by 7.7% (-7.0% previous) and subtracting 0.5% from quarter-on-quarter GDP growth (-0.5% previous).
- Private investment in machinery and equipment was also a drag, sliding by 1.9% and subtracting 0.1% from quarter-on-quarter growth, which is a disappointment because it added 0.1% to GDP growth previously.
- In terms of industrial output, mining output jumped by 6.2% (+1.1% previous), and the mining industry ended up being the main contributor, adding 0.5% to quarter-on-quarter GDP growth (0.1% previous).
- The 1.1% decline in construction (-0.3% previous), meanwhile, is the main drag, subtracting 0.1% from quarter-on-quarter GDP growth.
- Australia’s seasonally-adjusted jobless rate held steady at 5.7% in April, which is the lowest reading since September 2013.
- The labor force participation rate ticked lower from 64.9% to a 10-month low of 64.8%, however, so some blokes and sheilas probably gave up and left the labor force.
- Australian saw a net increase 10.8K jobs in April, which is a fewer than the 25.7K jobs gained in March.
- Still, the Australian economy has been gaining jobs for two straight months now after three consecutive months of net losses.
- However, a closer look at the job gains shows that the net increase was due to the 20.2K net increase in part-time jobs, which was able to offset the net loss of 9.3K full-time jobs.
- Part-time jobs generally don’t pay as well as full-time jobs, so the large increase in part-time jobs isn’t all that great.
- The seasonally-adjusted monthly hours worked fell for the third consecutive month, decreasing by 1.095 or 17.86 million hours
- The continuing slide in monthly hours worked is bad for Australia because fewer hours worked means less money earned and probably lower production output.
- Q1 2016 headline CPI slid by 0.2% quarter-on-quarter, missing expectations that it will advance by 0.3%.
- This is the first negative quarter-on-quarter headline CPI reading since Q4 2008.
- This also marks the fourth consecutive month that headline CPI has been trending lower on a quarter-on-quarter basis.
- Year-on-year, CPI grew by 1.3%, which is slower than the previous quarter’s 1.7%.
- Meanwhile, the annual core reading slowed to 1.7%, breaking two consecutive quarters of improving readings.
- This is the lowest annual core reading ever since Q2 1999’s record low of 0.87%.
- On a quarter-on-quarter basis, 6 out of 11 sub-components got hit.
- One of the biggest drags was the transport component, due mainly to the 10% decline in the price of automotive fuel.
Business Conditions & Sentiment
- The National Australia Bank’s (NAB) business confidence index eased from 6 to 5 points in April.
- Business confidence was steady for most industries, except for the mining and the retail trade industries since their readings were in the negative.
- The NAB business conditions index dipped from an eight-year high of 12 points to 9 points in April.
- The drop was due to lower lower profitability, as well as easing trading conditions.
- Business conditions in the retail trade and finance/property/business industries improved, but deteriorated or stagnated for the rest.
- The construction industry saw the largest deterioration in business conditions.
- The NAB labour costs index showed that wages are still rather subdued and even dipped ever so slightly from 0.7 to 0.6.
- Overall, NAB concluded that its readings still “confirm a continuation of the favourable business environment that has helped to underpin the non-mining recovery”
- Moving on, the Australian Industry Group’s (AIG) performance of manufacturing index (PMI) slid for the second consecutive month in May, falling to 51.0 from 53.4 after peaking at 58.1, which is the highest reading since April 2004.
- AIG’s performance of services index (PSI) edged higher from 49.5 top 49.7 in March, thanks to an increase in new orders.
- AIG’s performance of construction index (PCI) finally broke four straight months of contractions by printing a 50.8 reading in March.
- The higher reading was due to an increase in construction activity brought about by engineering construction activity while housing construction continued to contract, albeit at a slower rate.
- Finally, loans to businesses have been growing for five months running (on a monthly basis) and even jumped by 0.8% month-on-month in April (+0.3% previous).
- Year-on-year basis, business credit has been growing since September 2011.
- It also jumped by 7.4%% in April, which is the fastest pace of growth since January 2009.
Consumer Spending & Housing
- Retail trade turnover grew at a slower pace in April, growing by 0.2% month-on-month (+0.4% previous) and 3.6% year-on-year (+3.7% previous).
- There’s no discernible trend for the monthly reading, but the annual reading has been growing at a slower pace for two straight months and has been trending lower since November 2015 to boot.
- The year-on-year reading for April is also the slowest increase in six months.
- On an annual and monthly basis, personal credit has been contracting for five months running, but contracted at a slower rate in April, decreasing by 0.1% month-on-month (-0.3% previous) and 0.9% year-on-year (-1.0% previous).
- Housing loans to owner-occupiers continue to grow at a steady 0.5% month-on-month, but grew by 7.3% year-on-year, which is slightly faster than the previous month’s 7.2% increase.
- Home loans to owner-occupiers have been growing at an ever faster pace year-on-year since May 2015, which is a good sign that the housing market is healthy.
- As for housing loans to investors, they only grew by 0.3% month-on-month (0.4% previous) and 6.5% year-on-year (7.1% previous).
- Housing loans to investors have been steadily moderating from an annual high 11.0% back in May 2015, which means that speculative pressure on the Australian housing market continues to ease, reducing the chance of a housing bubble.
- Australia seasonally-adjusted trade deficit narrowed to around $1,579 million in April.
- That’s in Aussie dollars, by the way.
- Australia hasn’t seen a seasonally-adjusted trade surplus since March 2014, but the current trade gap is the smallest since February 2015.
- The narrower trade deficit was due to exports climbing higher by 0.6% to a seven-month high of $26,734 million while imports contracted by 0.8% to a 16-month low of $28,313 million.
- Rural goods (meat, cereal products, wool, etc.) contributed the most to exports ($171 million), followed by non-monetary gold ($141 million).
- Those were partially offset by the $224 million fall in exports of non-rural goods (iron ore, copper, oil, etc.).
- Imports of goods and services fell, but it’s kinda promising that consumer goods increased by $70 million since that could mean that consumer spending remains robust.
- However, it’s kinda worrying that the $222 million decline in the imports of capital goods was the main reason why imports fell in April, since that could mean that business investment slowed down.
Putting it all together
Australia’s economy grew at an accelerated pace in Q1 2016, which is good news for the RBA since it was expecting GDP to grow at a more moderate pace when it announced a surprise rate cut during the May 3 monetary policy decision.
Employment numbers for April, the first Q2 month, looked good on the surface but didn’t look so pleasant when looking at the details, especially the continuing loss of full-time jobs and the slide in monthly hours worked. And these are probably beginning to have an effect on consumer spending since retail sales took a small hit in April.
The housing market is still healthy at least, and the continuing decline in housing loans to investors may mean that the threat of a housing bubble continues to subside. Business sentiment and confidence deteriorated in April, however, but business loans accelerated further, which would hopefully translate to more business investment that would make the transition away from the mining sector faster and easier.
Finally, trade is starting Q2 on a good footing, since the current trade deficit is the narrowest since Febuary 2015. As for inflation, the current readings were released before the May 3 rate decision, so nothing major there.
Overall, Australia’s employment data aren’t all that good and signs are beginning to show that they’re affecting consumer spending, but other aspects of Australia’s economy still look promising. Continued lower wages and lower consumer spending may affect inflation in the long-run, though, and that’s one of the RBA’s major concerns.