There was mixed news from the one non-mining sector currently supporting economic growth, housing construction, from the Australian Bureau of Statistics this morning. Both the number and value of housing finance approvals fell in seasonally adjusted terms in January, with a particular big fall in the number of approvals for purchases of new dwellings, which fell 6.5% in seasonally adjusted terms and 1.9% in trend terms, while purchases of existing dwelling fell 3.1% seasonally adjusted and rose 0.2% in trend terms. Approvals to build new dwellings were also down 4.7% seasonally adjusted.
That is, the supposedly buoyant housing market deflated a little in January and, more to the point, the deflation happened mainly in new dwellings construction and purchasing. New dwellings construction is about all we have domestically to drive economic growth as the mining investment boom ends and the economy limps along at 2% annual growth, and we need as much new construction as possible to properly address the housing affordability issue.
South Australia and Western Australia both registered big falls in owner-occupied housing commitments, while Victoria was down 2% and Queensland 1.6%. But the nation’s largest housing market, in New South Wales, was relatively flat at a fall of 0.4% seasonally adjusted, which saved the national figures from being significantly worse.
The bad news is somewhat offset by data from last week on building approvals, which are much more volatile given they depend on how councils process development applications. The ABS reported that new building approvals jumped 7.9% in January, thanks to a surge in approvals for new non-private house approvals (mostly flats, townhouses, apartments).
But we also learnt this morning consumer confidence was down again. It is still well above its lows of December, according to the latest monthly Westpac-Melbourne Institute sentiment index, but the current reading of 99.5 suggests the interest rate cut and continuing low petrol prices haven’t done much to get consumers excited. The result followed a gloomier survey from National Australia Bank on Tuesday that showed business confidence had slumped to its lowest point since just before the 2013 federal election in February.
Reserve Bank assistant governor, economics, Chris Kent, also gave a speech this morning saying the Aussie dollar still remains too high for the bank’s comfort, despite it falling sharply overnight to close to 76 US cents in the face of a rapid rise in the US dollar. “The economy is currently operating somewhat below its productive capacity,” Kent said, rehashing the bank’s standard description of our ongoing sluggishness:
“The forecast is for a gradual increase in the growth of demand and employment, and eventually a rise in non-mining business investment, supported by the very low level of interest rates …
“The Bank’s recent update to its forecasts has pushed out the time at which we see GDP growth picking up from its current sub-trend pace. It is not that economic growth has weakened of late. But there is little to suggest that it will increase in the near term. This implies that the unemployment rate will rise for a bit longer and peak a bit higher than previously expected,“ he said.