Strong growth in building approvals in May suggests the residential construction sector’s long nosedive may finally be over, and removes whatever faint doubt there may have been that the Reserve Bank might cut rates this afternoon, or perhaps for some time.

Building approvals for all dwellings rose more than 27% in May on a seasonally adjusted basis. But the action was mainly in apartments: non-house dwelling approvals rose a monster 58.7% (how many councils have been clustering or hoarding approvals?) while house approvals “only” rose 8%. The rise was pleasingly widespread: NSW saw flat house approvals but a big rise in non-house approvals; Victoria saw a healthy rise in house approvals and a huge rise in apartments approvals; Queensland saw strong growth for both. WA bounced back from a dire April, but apartment approval remains sickly over in the west.

The May numbers are still significantly down on a year ago but, at least on apartments, there appears to be a sustained recovery from the diabolical declines of the past year. Are we seeing the impact of that series of rate cuts finally coming through?

Along with a range of other indicators, the data suggest the economy is much stronger than most analysts believe and the second quarter is shaping up as another solid quarter. Australian manufacturing remains in a contractionary phase, but there was a sharp improvement in activity in June that reversed a slide in May. Credit growth is running at three-year highs (especially for business), house prices jumped 1% in June, jobs growth is better than expected, new car sales remain strong. The Aussie dollar hit a two-month high overnight of $US1.0279.

Friday’s private lending data adds to the suggestion that the economy is doing better than many people, analysts, investors, economists and others, think it is. With lending up 0.5% in May (0.4% in April), the growth in the year to May was 4.0%, the best since April 2009. Business lending jumped 0.8% in May (after a 0.7% rise in April), to be up 3.3% in the 12-month period. That’s also the best growth in business lending since April 2009. Housing price and credit data still suggest that residential construction will take a long time to recover.

Figures yesterday from Australian Property monitors showed a 1% rise in prices in June. But credit slowed in May to a rate of 0.3%, from 0.4% in April and an annual rate of 5.1% (5.3% in April). That’s the weakest rate since the RBA started recording the figures in their present form 35 years ago. Other personal credit increased by 0.1% in May after falling 0.3% in April. Over the year to May, other personal credit fell 1.6%.

The rebound in business lending has been taking shape over the past six months, and in the three months to May the annual rate has jumped to more than 9%, a sure sign that business is borrowing more than it has done in the past three years. And according to early media reports, new car sales were an all-time high in June, up a reported 14% to about 110,000. Final figures from the Federated Chamber of Automotive Industries will be released around lunchtime tomorrow. This continues the strong rise in car sales this year, a trend that has been ignored by many analysts, but not by the RBA.

Retail sales data are out tomorrow, which might give the Hanrahans in the commentariat another chance to lament that things are terrible, but at the moment the weight of evidence suggests that the economy is picking up speed more quickly than many expected.

Peter Fray

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