Personal credit growth was negative for a second month in a row in July, meaning personal credit has fallen in four of the first seven months of this year. While that’s partly a sign consumers have stopped spending, thanks to higher petrol prices and interest rates, its also the impact of the credit markets turmoil which is slashing margin lending on shares.

In fact the fall in margin lending has driven much of the decline in personal credit in June and July as broking and lending firms tighten up on their standards and make calls on investors.

For its part, the Reserve Bank is on track to cut interest rates by 0.25%, and perhaps trail a hint that another 0.25% will happen by the end of the year. The RBA board is expected to cut its cash rate by 0.25% next Tuesday, but a continuing fall in personal credit growth to near recession levels, has raised the possibility that the cuts could be 0.50% in total.

Figures released today by the Reserve Bank for July show that total credit provided to the private sector by financial intermediaries rose by 0.5% in July 2008, following a rise of 0.4% in June and 09,5% in May.

The annual growth rate fell to 11.2% from a revised up 11.8% in June (11.7% originally) and 13.3% in May.

The big news was the 0.7% fall personal credit in the month, on top of the 0.6% fall in June. Annual growth in the year to July dropped to just 3%, which is recession-like, compared to 3.7% in June and a huge 13.7% last December.

Business lending edged up up 0.7% in July from 0.4% in June, but the annual growth rate eased to 15.0% from 15.9% in the year to June. Both housing and business lending seem to have stabilised in the past three months at an annual growth rate of 6% to 7%, well down on what it was a year ago.

With building approvals also stabilising (and we will get July building approvals next Wednesday, after the RBA decision) there’s every sign that the sharp fall in housing seen this year is over.

The RBA said that lending for housing grew 0.5% in the month, down from 0.6% in June and an annual rate of 9.8% (10.1% in June).

The Housing Industry Association said this morning that sales of new homes fell in July by a seasonally adjusted 7.2%, reversing June’s 4% bounce. Private detached house sales dropped by 7.5%, while sales in the volatile multi-unit sector (Home units etc) fell 5.2%.

And in an encouraging sign for retailing, Harvey Norman has done well, as its newly emerging rival discounter, JB Hi-Fi did, in the year to June.

Harvey Norman posted an 11% increase in full-year profit excluding one off items, helped by sales of computers and games.

Net profit before one-offs for the year to June 30 rose to $358.5 million from $324.1 million (excluding one off items) in 2007.

Peter Fray

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