Rates to stay on hold

Port Douglas & Mossman Gazette - - FRONT PAGE -

WEST­PAC’S pre­scient eco­nomic an­a­lyst and rate fore­caster Bill Evans says the Re­serve Bank of Aus­tralia is likely to keep rates on hold for a while yet.

He says eco­nomic con­di­tions, while show­ing im­prove­ment rel­a­tive to the last 12 months, are still markedly weaker than a year ago. The econ­omy, how­ever, will be suf­fi­ciently buoy­ant to tempt the Re­serve Bank to await fur­ther de­vel­op­ments.

To sum it up, he says, the fac­tors are th­ese: Con­fi­dence is solid; hous­ing strength is un­cer­tain; there’s a weak job mar­ket; and the world econ­omy is soft.

Firstly on busi­ness, ‘‘we have al­ready pointed out the ev­i­dence in 1996 when a Coali­tion vic­tory (af­ter a long pe­riod in op­po­si­tion) was greeted with solid boosts to busi­ness con­fi­dence al­though busi­ness con­di­tions were lit­tle changed.’’

The NAB sur­vey on busi­ness con­fi­dence which printed this week showed a sim­i­lar story. The mea­sure for busi­ness con­fi­dence surged from +4 to +12 the high­est read for 3.5 years; that con­trasted with its av­er­age read over the past 6 months of around zero.The mea­sure for busi­ness con­di­tions also im­proved from 7.4 to 4.2. That com­pares with an av­er­age over the last 12 months of around 6 and an av­er­age in the 6 months to Septem­ber 2012 of 1.8.

There was only a mod­est im­prove­ment in the em­ploy­ment se­ries. It im­proved from 9 to 6 but was still firmly in neg­a­tive ter­ri­tory. Over the past 12 months the em­ploy­ment in­dex has av­er­aged around 6.6, com­pared to 1.6 in the six months to Septem­ber 2012.

On the other hand, Con­sumer Sen­ti­ment failed to re­tain all the gains from around elec­tion time. The In­dex of Con­sumer Sen­ti­ment fell by 2.1 per cent in Oc­to­ber from 110.6 in Septem­ber to 108.3.

Con­sis­tent with the weak reads for the em­ploy­ment com­po­nent of the busi­ness sur­vey, we saw that re­spon­dents re­mained con­cerned about their jobs. The West­pac Mel­bourne In­sti­tute In­dex of Un­em­ploy­ment Ex­pec­ta­tions rose by 0.6 per cent in Oc­to­ber, in­di­cat­ing on­go­ing con­cerns.

The In­dex is 10.1 per cent above the level in Novem­ber 2011 (the date of the first rate cut in this cy­cle), in­di­cat­ing sig­nif­i­cantly more height­ened con­cerns around job prospects than at that time. That con­trasts with the over­all Con­sumer Sen­ti­ment In­dex which is 4.7 per cent above its level in Novem­ber 2011.

The Em­ploy­ment Re­port for Septem­ber showed a weak labour mar­ket. To­tal em­ploy­ment rose 9100.

This is an in­sipid rate of em­ploy­ment growth as to­tal em­ploy­ment has lifted just 0.8 per cent per an­num, or by just 95,500 in the year to Septem­ber. To­tal hours worked con­tracted, bring­ing the an­nual pace down to 0.6 per cent a year, more in line with an­nual growth in to­tal em­ploy­ment. Sur­pris­ingly, the un­em­ploy­ment rate fell to 5.6 per cent from 5.8 per cent in Au­gust.

So far this year, most of the growth in em­ploy­ment has been in part-time fe­male em­ploy­ment.

Re­cent in­creases in house prices are another rea­son for the bank to de­lay any move. ‘‘Last week I wrote, ‘Our judge­ment re­mains that the hous­ing re­cov­ery will con­tinue to be a ’stop-start’ one, un­even across both seg­ments and states. There are sig­nif­i­cant head­winds that are yet to fully im­pact with some mar­kets fac­ing a sig­nif­i­cant in­crease in the sup­ply of new dwellings (Vic, WA) and the min­ing down­turn yet to play through fully to hous­ing (WA, Qld)’,’’ Mr Evans said.

The Con­sumer Sen­ti­ment sur­vey lent some cred­i­bil­ity to those views of a "stop-start" hous­ing mar­ket.

There was a shock read­ing on whether now is a good time to buy a dwelling. That in­dex fell by 10.3 per cent from 145.0 to 130.0. There were some big falls in in­di­vid­ual states par­tic­u­larly NSW (22.5 per cent) and Queens­land (11 per cent). It may be that af­ford­abil­ity is­sues, par­tic­u­larly in Syd­ney, are al­ready weigh­ing down the at­trac­tive­ness of prop­erty.

‘‘Fi­nally we re­ceived the lat­est global growth fore­casts from the IMF. Our down­beat global growth out­look for 2014 has been a key rea­son be­hind our view that the RBA will con­tinue cut­ting rates in 2014.

‘‘The IMF low­ered its global growth fore­cast from 3.8 per cent to 3.6 per cent - in the right di­rec­tion but still well above our fore­cast of 3 per cent,’’ Mr Evans said. ‘‘The main rea­son be­hind the IMF down­grade is its view on de­vel­op­ing economies and emerg­ing mar­kets.

‘‘It re­tains an overly op­ti­mistic view on US and Europe.’’

‘‘ We are com­fort­able with both our de­ci­sions last week. There is enough ev­i­dence around busi­ness con­di­tions and con­fi­dence for the Re­serve Bank to seek fur­ther in­for­ma­tion be­fore mov­ing rates in Fe­bru­ary. How­ever global growth; labour mar­ket; hous­ing and the con­sumer con­tinue to point to the need for fur­ther stim­u­lus next year.’’

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