The developing boom in new home building is holding the sluggish Australian economy aloft, and is the only sector stopping credit from contracting overall.

Figures released by the Reserve Bank this morning show that if it hadn’t been for another solid month of lending for housing, especially to owner occupiers and first home owners, then total lending in the economy would have contracted last month.

That was probably the case in February and possibly March.

Total credit again rose by 0.1% over April 2009, following a similar rise over March. Over the year to April, total credit rose by 4.6%, down from the 4.9% annual rate in the year to March.

April’s rate was the slowest for 15 years, the last time we saw it so slow (besides March) was in 1994.

Housing credit increased by 0.7 per cent over April, following an increase of 0.7 per cent over March (restated from an original rise of 0.6%).

Over the year to April, housing credit rose by 7.1% down from the 7.2% rate in the year to March.

The RBA said that the rise in housing credit over April was mostly due to growth in lending to owner-occupiers, although lending to investors also rose (that’s something that has started showing up in the housing finance figures from the ABS).

Owner occupied housing rose 0.8% in April for the third month in a row. The annual growth rate has steadied at 8.4%, the first time it has steadied for over two and a half years. Lending to housing investors steadied at 0.4% growth in April for the second month in a row and is now well up on the low point of a fall of 0.1% last November.

Supporting the stronger credit figures for housing, a report today from RP Data showed that Australian house prices have rebounded strongly in the four months to April.

“Home prices in capital cities rose 2.8 per cent in the four months to April, according to real estate research firm RP Data, “virtually wiping out” 2008’s 3% fall.

“Homes in every capital, except Perth, rose in value. Median home prices in the WA capital fell by 0.8 per cent to $466,385 after “spectacular” growth during the commodities boom.”

Other personal credit fell by 0.3% in April, following a decline of 0.4%. The RBA said that in the year to April, other personal credit fell by 6.6%, “reflecting a large decline in margin lending.”

Business credit fell by 0.5% in April, following a decline of 0.6% in March.

“Since its peak in November 2008, the decline in business credit has been due to falls in foreign currency denominated lending. Over the year to April, business credit rose by 3.5%, down from the 4.1% annual rate in March.

The fall in business lending also helps explain the slowing in new private capital spending seen in the March quarter figures which were released yesterday. The annual growth in business lending is well down from the 13% plus in April of 2008 and the 23&-plus rates in the closing months of 2007.

In fact you could say business lending has slowed to a very slow walk, while housing is accelerating to a brisk trot.

Meanwhile, Japanese industrial production rose for a second month in April, but unemployment also rose, hitting a 5 year high as consumer spending and retail sales again fell.

Factory output rose 5.2% from March, when it gained 1.6%. That was better than forecast, but is still 31.2% down on April 2008, according to figures from the Trade Ministry. It was the strongest monthly rise for 56 years, but it was dwarfed by the record 10% plus fall seen earlier in the year.

But it is good news, and was forecast by the Trade Ministry in its forward estimates last month, which picked up plans by car companies and other companies to restart production lines or expand output.

The department says those forward estimates point to an 8%-plus growth in output in May, but a sharp slowdown in June to a rise of 2.7%.

The production numbers add to signs that demand from abroad may be stabilising. Exports rose 1.9% in April from March, a second monthly gain.

Domestically, the news is glum. Unemployment hit 5% last month, the highest in more than five years, and household spending fell for a 14th month, down 1.3%. Retail sales fell more than 2% last month. But despite this, consumer sentiment has recovered as Government’s spending from its stimulus package trickles into the economy and into hands of taxpayers.

But at best this is a steadying at the bottom of a very deep trough. Production is still more than 30% where it was a year ago, exports are around half what they were a year ago, and domestic consumption shows no sign of recovering. Looking forward, it’s apparent there’s nothing that can kick start the Japanese economy except a recovery in the US and Europe.

Rebounds in China, India and other emerging economies can help, but Japan’s economy, with its heavy emphasis on high value cars, consumer electronics, electronics parts and value added chemical and other productions, needs a sharp rebound in the higher consuming economies of North America and Europe.

But core consumer prices fell 0.1% in April from April 2008, so the country is in the grip of a mild dose of deflation.

Peter Fray

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