New data on vehicle sales today shows that car sales are booming and that it’s primarily consumers doing the buying.

ABS data for car sales in June showed sales reaching records across all three categories — passenger, SUV and others — marking the first time ever that monthly total car sales went over 100,000.

On a seasonally adjusted basis (June is always the peak month for car sales), sales dipped -0.6%; in trend terms they were up 0.8%, and in seasonally adjusted terms up a remarkable 18.4% for the year. Part of that was due to the rebound in imports from Japan from around August – October onwards of last year, after the sharp fall at the end of the 2011 financial year because of the impact of the March 2011 quake and tsunami.

A breakdown of the data from the Federal Chamber of Automotive Industries shows that in the passenger vehicles category, business buying grew by 5% across the year compared to 1.9% consumer purchases, although consumers bought around two-thirds more vehicles overall. In SUVs, consumers powered growth, with purchases up over 38% across the year. Across all categories, consumers bought 11.2% more vehicles, business 10.5% and rental companies (which make up a small component of purchases) nearly 25%. Governments cut back purchases by over 6%.

In short, if they’re cautious and conservative in other areas, consumers are spending like it’s an economic boom when it comes to vehicles. Yesterday the ABS released lending finance data for May that confirmed the boom. Lending for new passenger vehicles in May hit a monthly record of $539 million; traditionally June is the biggest month for vehicle lending finance because it’s the end of the financial year and car companies push one-off offers hard in the media. Lending also hit records for used vehicles and motorcycles.

The figures should be borne in mind when reflecting on flat retail sales data and consumer confidence indices. Unlike most categories of consumer goods, vehicles are major purchases less likely to be undertaken by consumers genuinely concerned about their future financial circumstances, especially when they necessitate borrowing. Whatever they’re telling pollsters and however much they’re spending in department stores, Australians are buying new and used cars and motorbikes with enthusiasm. Australian businesses are also aggressively expanding or turning over their fleets.

The strong dollar is undoubtedly a factor in this, which explains why local car companies remain in the doldrums despite a booming car market; a Commsec study in January concluded that tariff cuts were the main reason cars were more affordable than ever. Either outcome is bad news for local manufacturers.

The strong car sales data complements what we’ve learnt from the release of the minutes of the July meeting of the Reserve Bank board this morning. The more detailed minutes supported the thrust of the post -meeting statement from Governor Glenn Stevens on July 3 which dampened much of the near hysterical bidding on the number of rate cuts to come in Australia:

“Domestically, members noted that the March quarter national accounts data implied that the economy had had more momentum since mid 2011 than had previously been indicated. Recent data suggested that growth had probably slowed a little from that reported for the first quarter to be around trend pace. Mining investment had been a little stronger than had been expected, and members noted that growth in much of the non-resource economy had remained modest, particularly in those industries under pressure from the high exchange rate and the weakness in the housing sector. The measured strength of consumption growth in the March quarter was at odds with a number of partial indicators for that period, but consumption was being supported by a favourable labour market and recent liaison had a firmer tone.”

“Liaison” is the RBA’s extensive program of business consultation to ensure it knows what’s going on in the real economy. “Members noted that indications were that inflationary pressures overall remained contained, notwithstanding the evidence of somewhat stronger economic growth over the past few quarters. In part, this was likely to reflect the still high level of the exchange rate and a softening in global prices, in particular for oil and other commodities. The weak conditions in parts of the economy for most of the past year – such as retailing and housing – also appeared to have played a role. Members observed that there was also tentative evidence that productivity growth had picked up over this period.”

Oops, that last sentence isn’t very helpful to the “productivity debate”. Also bear in mind the bank’s comments about inflation. Remarkably, Eurozone inflation numbers overnight showed that despite many parts of Europe being in a near-depression, inflation there, at 2.4%, is higher than it is here in Australia.

“Members continued to view it as appropriate for interest rates to be a little below average given evidence of slower global growth and the low rate of inflation in Australia. But with a material easing in monetary policy having occurred over the preceding six months or so, and with recent signs that the domestic economy had a little more momentum than had earlier been indicated, members saw no need for any further adjustment to the cash rate at this meeting.”

So no more “rate cut looms” nonsense from forecasters and the media. And, no “rate rise looms” either because inflation remains under control and the outlook in Europe, China and especially the US isn’t all that flash.

Peter Fray

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