For some entirely obscure reason the Australian Bureau of Statistics and the RBA choose the first week of December to overload markets with a range of monthly and quarterly economic information. The RBA also throws in its monthly policy meeting for good measure. It is Christmas come early for dedicated, sad-sack data watchers, such as myself. Whether the various economic readings will add any real colour to the economic outlook is doubtful and reason enough for the RBA to leave the cash rate unchanged at 2.00%.
October economic readings out this week include private sector credit; home building approvals; international trade; and retail trade. Each of these may provide something of interest, but enough to shift the prevailing market view that the Australian economy is growing slowly, but could do a lot better.
Private sector credit growth has been firming over recent months and after gaining 0.8% in September is expected to rise by around 0.6% in October. Annual growth in credit would slip slightly to 6.6% y-o-y, from 6.7% y-o-y in September. Housing credit has been the strongest component, up 7.5% y-o-y in September, but business credit has accelerated noticeably over recent months to 6.3% y-o-y, providing some hope that at least small and medium sized businesses, the main users of intermediated credit, may be lifting their investment spending. Missing in action is personal credit, up only 0.5% y-o-y in September and indicating that retail spending growth may be at risk of fading.
October home building approvals are expected to fall by around 2.5%, after rising 2.2% in September, but would still be elevated – more than 18,500 in the month and up around 6.0% y-o-y. Very strong growth in home building approvals over the year or so seems to be in the process of topping out. Home building work in progress tends to follow approvals with a lag of 3-6 months and so it is reasonable to assume that home building work with still be rising very strongly for several months to come before starting to flatten out and may not show signs of declining until late 2016, or even 2017. Any big surprise either way in the October home building approvals could assist in tweaking the timetable when home building activity is likely to flatten.
October international trade is expected to show the trade deficit widening to around $A2.6 billion from $A2.3 billion in September. Imports rose slightly in the month, but exports are always tricky to call. Big bulk export items, iron ore and coal, although suffering weaker prices are still being shipped in increased volumes, but any interruption would be a sign that the softest part of China’s economy, weakening steel production, is starting to take a toll. At the same time, Australia’s service exports are becoming increasingly interesting, particularly very fast growing tourism receipts.
October retail trade perhaps deserves the title of indicator of the week. If Australia is to achieve any reasonable economic growth rate at a time when mining investment spending is sharply falling as it is and will be for some time, household consumption spending will need to do much of the heavy lifting. Retail trade rose by 0.4% in September is expected to lift by a similar amount in October. A stronger-than-expected reading would go some way to indicating that retail spending is accelerating. Equally, a weaker-than-expected reading would be a disappointment and a sign that stories of a strong pre-Christmas spending are more hype than reality.
Apart from October economic readings, GDP data for Q3 will also be released on Wednesday. A few more quarterly economic readings contributing to GDP growth will be released beforehand including Q3 business indicators; Q3 government spending; and the Q3 balance of payments providing the net export contribution to GDP. Depending upon how these indicators shape up relative to expectations analysts sometimes tweak their Q3 GDP forecast, but at this stage the market is looking for GDP growth around 0.7% q-o-q, 2.3% y-o-y and up from 0.2% q-o-q, 2.0% y-o-y in Q2.
If GDP growth accelerates modestly in Q3 in line with market expectations, it also sits comfortably with the RBA’s view that the economy is showing signs of improvement. Even though economic growth is still below potential, probably these days around 2.5% y-o-y and the RBA has stated that it is desirable for the economy to run above potential for a period, it is unlikely that an unexpected Q3 GDP outcome would be sufficient to push the RBA to ease further. In any case Q3 GDP will not be released until the day after the RBA meeting.
All told, it is a big week ahead for local data watchers, but once the dust settles it is unlikely that anything of real consequence will have changed. The economy will still be growing below potential and most likely the cash rate will still be 2.00% and the same story will hold with some certainty for at least two months beyond – a period with relatively little data of consequence and no RBA meetings until early February.