Weekly Market & Currency Developments – From Our Bankers

Mixed Christmas spending

Commonwealth Bank Business Sales Index

  • The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, rose by 0.4 per cent in trend terms in December. While this result is in line with the long-term average monthly growth pace, the performance was more mixed across sectors.
  • At a sectoral level, 12 of 19 industry sectors rose in trend terms in December, up from 11 sectors in December. Sales rose across all the states and territories in the month.
  • The annual trend sales growth eased from 5.8 per cent to a 12-month low of 5.3 per cent in December, although it remains in line with the long-term average pace.
  • The more volatile seasonally-adjusted measure of the BSI fell by 0.8 per cent in December although this was only the second decline in the past eight months.
  • The Commonwealth Bank BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. The BSI covers spending broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines.

What does it all mean?
  • Spending across the economy is growing in line with longer-term averages. Big-ticket items like cars are experiencing softer sales in response to slower growth of home prices and outright declines in some cities.

What does the data show?

  • Revisions have been made to the data collection procedures and analytical assessment methods for the Commonwealth Bank Business Sales Indicator. The revisions affect results published since March 2018.
  • The Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by 0.8 per cent in trend terms in November after a 0.7 per cent increase in October and 0.6 per cent gain in September. Economy-wide sales have now lifted for 21 consecutive months.
  • The Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by 0.4 per cent in trend terms in December after a 0.3 per cent increase in November and a 0.2 per cent gain in October. Economy-wide sales have now lifted for 22 consecutive months.
  • The growth pace started lifting in March 2017 and over the period from October 2017 to January 2018 the BSI consistently recorded monthly gains of between 0.7-0.9 per cent a month. Growth in sales has held between 0.2-0.6 per cent a month for the past 11 months, picking up pace over November and December. Current growth is in line with the long-term average pace of 0.4 per cent.
  • The annual trend sales growth eased from 5.8 per cent to a 12- month low of 5.3 per cent in December, although it remains in line with the long-term average pace.
  • The more volatile seasonally-adjusted measure of the BSI fell by 0.8 per cent in December although this was only the second decline in the past eight months.
  • The Bank BSI is obtained by tracking the value of credit and debit card transactions processed through the Bank merchant facilities. And in line with the practice of the Bureau of Statistics with retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. The seasonally adjusted and trend BSI results permit analysis of the broader underlying trends that may be hidden in the raw data.
  • Across sectors, 12 of the 19 industry sectors rose in trend terms in December. Amongst the biggest gains in sales were Transportation (up 3.1 per cent); Hotels & Motels (up by 0.7 per cent); and Personal Service Providers (up 0.6 per cent).
  • Sales fell most in Automobiles & Vehicles (down by 1.3 per cent); Mail Order/Telephone Order Providers (down by 1.0 per cent); and Government Services (down by 0.7 per cent).
  • Encouragingly, Business Services was amongst the sectors to gain in December (up 0.4 per cent), and sales have now only fallen once in almost three years. And the 0.7 per cent lift in sales at Hotels & Motels extends the period of consecutive monthly growth to more than 51⁄2 years.
  • In annual terms in December, all but three of the 19 industry sectors recorded gains. Spending fell by 1.8 per cent over the past year in Government Services with Clothing down 1.3 per cent and in Automobile/Vehicle Rentals down 0.9 per cent.
  • At the other end of the scale, sectors with strongest annual growth in December included Transportation (up 18.7 per cent); Airlines (up 11.7 per cent); and Hotels & Motels (up 11.6 per cent).
  • Sales were stronger across all states and territories in December. The strongest growth occurred in Tasmania (up 0.9 per cent); NSW (up 0.6 per cent); ACT and Western Australia (both up 0.5 per cent). South Australia (up 0.3 per cent); Northern Territory (up 0.2 per cent); and Victoria and Queensland (both up 0.1 per cent).
  • In annual terms all states and territories had sales above a year ago except Northern Territory (down 1.6 per cent). The strongest growth was in Tasmania (up 7.6 per cent); from Western Australia (up 6.4 per cent); Victoria (up 5.9 per cent); Queensland (up 5.7 per cent); NSW (up 4.8 per cent); South Australia (up 4.5 per cent); and ACT (up 2.0 per cent).

What is the importance of the report?

  • The Bank releases its Business Sales Index (BSI) around the 20th each month. The data provides a broader perspective of consumer spending. The BSI includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes & restaurants. But it is more comparable to the ABS Household Final Consumption Expenditure released on a quarterly basis. The Business Sales Indicator also covers businesses such as airlines, car dealers and utilities such as water and electricity companies as well as motels, business, professional and government services and wholesalers.

What are the implications for interest rates and investors?

  • Overall, spending continues to lift. But given the mixed nature of gains, the BSI highlights the importance for investors to focus on results by individual companies and industry sectors in the current climate.
  • Experts continue to expect stable interest rate settings until late in 2019.

 

NSW & Victorian jobless rates at record lows

Labour force

  • Employment rose by 21,600 in December after a revised 39,000 increase in jobs in November (previously reported as a 37,100 increase in jobs). Full-time jobs fell by 3,000, but part-time jobs rose by 24,600. Economists had tipped an increase in total jobs of around 18,000.
  • Hours worked rose by 1.3 per cent in the month to be up 1.5 per cent over the year.
  • The unemployment rate fell from 5.1 per cent to a 71⁄2-year low of 5.0 per cent in seasonally adjusted terms. Actually, to two decimal points, the jobless rate stood at 4.98 per cent in December. In trend terms the jobless rate remains at 5.0 per cent – a result that hasn’t been bettered in a decade.
  • Participation rate: The participation rate eased from 65.7 per cent to 65.6 per cent. In trend terms the 65.6 per cent participation rate remained at record highs.
  • Unemployment across states in December: NSW 4.3 per cent (November 4.3 per cent); Victoria 4.2 per cent (4.5 per cent); Queensland 6.1 per cent (6.3 per cent); South Australia 5.9 per cent (5.3 per cent); Western Australia 6.3 per cent (6.5 per cent); Tasmania 5.9 per cent (5.8 per cent). In trend terms, Northern Territory 5.0 per cent (4.9 per cent); ACT 3.6 per cent (3.6 per cent).
  • State/Territory jobs: In seasonally adjusted terms, the largest increase in employment was in Queensland (up 11,600 persons), followed by Victoria (up 10,500 persons) and New South Wales (up 3,800 persons). The largest decrease was in Western Australia (down 15,300 persons). 

A raft of companies is affected by the employment data but especially those dependent on consumer spending. Amongst stocks affected are Nine Entertainment, West Australian Newspapers, Seek Limited, McMillan Shakespeare and Skilled Group.

What does it all mean?

  • The story hasn’t changed – the job market remains in strong shape. More people are looking for work; more people are finding work. And those in jobs are working longer hours. The seasonally adjusted results for the states continue to bob around but the trend estimates confirm the strong situation. The trend jobless rate has equalled decade lows and the participation rate has equalled record highs. More people than ever are looking for jobs and finding work.
  • While full-time jobs have eased 10,000 in the past two months, in the previous five months full-time jobs soared by 164,000. So we should be careful about reading too much into the break-up of part and full-time positions.
  • The strength in the east and south-east continues. We can quibble over a tenth of a per cent here and there. And debate whether we use trend or seasonally adjusted estimates. But broadly NSW and Victorian jobless rates are at the lowest levels since monthly estimates were compiled over 40 years ago in 1978.
  • The seasonally adjusted unemployment rate in Victoria is 4.2 per cent, last equalled in August 2008 but a rate not bettered in records back to February 1978. In trend terms the jobless rate remained at 4.4 per cent, a level only bettered once, in August 2008.
  • The NSW seasonally adjusted jobless rate remained at 4.3 per cent – a result last bettered in February 2008. In trend terms the jobless rate of 4.3 per cent hasn’t been bettered in records back to 1978.
  • The big story is that job security remains strong. That is reflected in the fact that more people are keen to change positions, most likely securing a higher salary. In November, a record 644,800 were changing jobs or seeking other employment. More people getting jobs, more people changing jobs and more people secure in jobs all serve to lift spending across the economy.
  • Leading indicators such as yesterday’s skilled job vacancies data (currently at 61⁄2-year highs) point to further job gains and further tightening of the job market. There is continued anecdotal evidence that businesses are finding positions harder to fill. Wage growth is lifting and has potential to rise further in coming months.
  • The Reserve Bank has good reason to be optimistic about the economy’s prospects in 2019. Business conditions are good, businesses are investing and employing more staff. The infrastructure boom is more than offsetting a slowdown in home building. But inflation remains under control. We expect the Reserve Bank to remain on the sidelines until much later in the year.

What do the figures show?

  • Employment rose by 21,600 in December after a revised 39,000 increase in jobs in November (previously reported as a 37,100 increase in jobs). Full-time jobs fell by 3,000, but part-time jobs rose by 24,600. Economists had tipped an increase in total jobs of around 18,000.
  • Annual job growth eased from 2.3 per cent to 2.2 per cent (decade average 1.6 per cent).
  • Hours worked rose by 1.3 per cent in the month to be up 1.5 per cent over the year.
  • The unemployment rate fell from 5.1 per cent to 5.0 per cent in seasonally adjusted terms (4.98 per cent to 2- decimal points). The jobless rate is the lowest in 71⁄2 years – since June 2011. In trend terms the jobless rate hasn’t been lower in a decade at 5.0 per cent.
  • Participation rate: The participation rate eased from 65.7 per cent to 65.6 per cent. In trend terms the 65.6 per cent participation rate remained at record highs.
  • Unemployment across states in December: NSW 4.3 per cent (November 4.3 per cent); Victoria 4.2 per cent (4.5 per cent); Queensland 6.1 per cent (6.3 per cent); South Australia 5.9 per cent (5.3 per cent); Western Australia 6.3 per cent (6.5 per cent); Tasmania 5.9 per cent (5.8 per cent). In trend terms, Northern Territory 5.0 per cent (4.9 per cent); ACT 3.6 per cent (3.6 per cent).
  • State/Territory jobs: In seasonally adjusted terms, the largest increase in employment was in Queensland (up 11,600 persons), followed by Victoria (up 10,500 persons) and New South Wales (up 3,800 persons). The largest decrease was in Western Australia (down 15,300 persons).
  • The working age population rose by 24,800 in December to 20.39 million. Over the year the working age population rose by 340,000 (15-month high) or 1.70 per cent, but this is still down from the record 2.36 per cent annual growth in December 2008.
  • The monthly trend underemployment rate increased less than 0.1 pts to 8.4 per cent. The monthly underutilisation rate remained steady at 13.4 per cent.
  • The monthly seasonally adjusted underemployment rate decreased 0.1pts to 8.4 per cent. The monthly underutilisation rate decreased 0.2 pts to 13.3 per cent.

Why is the data important?

  • The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel.
  • If more people are employed, then there is greater spending power in the economy. But at the same time companies may adjust the work hours of employees. If employees work less hours, and therefore get paid less, then spending power in the economy is reduced.

What are the implications?

  • A strong job market has implications for a raft of businesses. The issue at present is that more and more firms are finding it hard to fill vacancies. And the reports cover a range of sectors such as hospitality, mining and construction.
  • NSW and Victoria are effectively at full-employment. Further falls in jobless rate will probably only come at the cost of higher wages and prices.
  • The job market is strong but inflation is contained. Experts expect official interest rates to remain on hold until later in 2019.

 

Investor Signposts: Week Beginning January 27 2019

Australia: Inflation in focus

  • In the coming week, inflation data dominates the economic calendar.
  • On Tuesday, the NAB business survey is released.
  • On Wednesday, ANZ and Roy Morgan release the weekly consumer confidence data.
  • Also on Wednesday the Australian Bureau of Statistics (ABS)issues the quarterly Consumer Price Index (CPI), the main inflation measure. We expect that the headline CPI rose by 0.4 per cent in the quarter, trimming annual growth from 1.9 per cent to 1.6 per cent. The average underlying rate may have risen 0.5 per cent in the quarter (1.8 per cent annual). In short, 
  • the cash rate is going nowhere for now.
  • On Thursday, the ABS releases the December quarter data on export and import prices together with detailed estimates of the job market in December.
  • Also the Reserve Bank issues the Financial Aggregates publication on Thursday, a publication that includes the latest data on private sector credit (effectively, loans outstanding).
  • On Friday, CoreLogic releases the January Home Value Index – the most widely followed measure of home prices in Australia. Driven by lower prices in Sydney and Melbourne, the national measure of home prices probably fell 0.7 per cent in January to be down around 6.5 per cent over the year.
  • The ABS releases yet another publication on prices on Friday, this time the Producer Price Indexes for the December quarter. The report covers various measures of business prices.
  • Also on Friday both CBA and the AiGroup release the results of their separate surveys of purchasing managers in the manufacturing sector.

Overseas: Bevy of data and events

  • In the US, the economic release schedule remains subject to change – a victim of the government shutdown. A mountain of indicators are delayed by the shutdown, including retail sales and economic growth.
  • The US Federal Reserve meeting, US-China trade talks (January 30-31), the US earnings (profit reporting) season and Brexit discussions are amongst key events and possibly the US State of the Union on January 29.
  • The week begins on Monday in China with data in industrial profits. In November, profits were up 11.8 per cent over the year.
  • On Monday in the US, a bevy of economic indicators were to slated for release including retail sales, housing starts, new home sales, durable goods orders and international trade. Now investors can look forward to just two regional surveys – the Chicago Federal Reserve national activity index and the Dallas Federal Reserve manufacturing index.
  • Over Tuesday and Wednesday US Federal Reserve policymakers meet to decide interest rate settings (decision 6am Sydney time on Thursday). Rates were lifted in December so a further move is not expected at the January meeting of policymakers. Indeed the text of the decision should confirm that rates are on hold for now.
  • On Tuesday in the US, the S&P/Case-Shiller home price measure is released with the Conference Board gauge on consumer confidence. Home prices may have edged 0.1 per cent lower in November, trimming annual price growth from 5 per cent to 4.9 per cent.
  • On Wednesday the advance (flash) reading of US economic growth (GDP) was to be released. Now we look forward to the ADP private sector employment report (175,000 lift in jobs expected) with pending home sales data and weekly mortgage applications.
  • In the US on Thursday the weekly jobless claims data (new claims for unemployment insurance), Challenger job cuts and Chicago purchasing managers index are due for release.
  • In China on Thursday the National Bureau of Statistics is expected to release both the manufacturing and services purchasing manager indexes (PMI). The private sector Caixin PMI for manufacturing is expected to be released on Friday with the equivalent services gauge set down for Sunday (February 3).
  • On Friday in the US, the ISM manufacturing gauge is expected with consumer sentiment, new vehicle sales and the monthly jobs report (non-farm payrolls). Economists expect that the job market remained in good shape with 183,000 jobs created and a jobless rate of 3.9 per cent.

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