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Sunday, June 21, 2009

RBA Board minutes; ABARE crop report

Reserve Bank Board adopts wait and see policy

Reserve Bank Board members agreed on “a wait and see” policy at the last interest rate meeting, noting the significant improvement in economic conditions in domestic and global economies.
Board members noted the significant stimulus injected into the Australian economy: “that the fiscal expansion, together with the monetary policy easing over recent months, represented the largest macroeconomic policy stimulus over recent decades”.
Australia’s chief commodity forecaster, ABARE, expects Australian winter crop production to have increased by 5 per cent to 34.8 million tonnes. Forecasts for Australia’s 2009/10 wheat crop is expected to rise by 2.7 per cent to 21.9Mt.
What does it all mean?
It is pretty clear from the minutes of the latest Reserve Bank Board meeting that the Board believes that the best approach is to hold off on any further rate cuts in the short term. The Reserve Bank Board has indicated that the Australian economy has been front loaded with more than enough ammunition to combat the current downturn, and the domestic economy is showing signs of having passed through the worst of the downturn.
A quiet confidence is perceived in the Board minutes with members noting that the global economy has shown signs of improvement. In particular members focused on the strong initial recovery recorded in China. Importantly board members believed that the Chinese economy would continue to record solid growth outcomes in the near term.
A qualitative assessment of the Reserve Bank Board by CommSec highlights the more optimistic tone of the meeting. Only 17 per cent of the statement highlighted a negative viewpoint while a resounding 60 per cent of the statement was more positive. The Board clearly believed that with interest rates at 49 years lows and significant fiscal stimulus currently been undertaken, it was having an expansionary effect on the Australian economy. However gauging the size and extent of recovery was the difficult part. As a result the Reserve Bank decided the more prudent course was to keep rates on hold.
The Reserve Bank is in effect holding back on any future rate cuts unless they become absolutely necessary. Certainly the weak inflation outlook will ensure that if further rate cuts are needed the board is available to provide them.
At this stage the Reserve Bank looks likely to keep rates on hold in up coming months. However CommSec is not ruling out the possibility of another rate cut of 25 basis points over the last quarter of this year.
While the global recession dominates headlines, farmers can look to more improving conditions. The rains over late May and Early June have ensured that the upcoming winter harvest is likely to be significantly higher than a year ago. Importantly the one area that is still uncertain is Western Australia where farmers are still waiting on healthy rains. The combination of higher production, favourable prices and a lower Australian dollar points to better prospects for farm incomes.
What do the figures show?
The Australian Bureau of Agricultural and Resource Economics (ABARE) expects Australian winter crop production to have increased by 5 per cent to 34.8 million tonnes on a year ago.
Forecasts for Australia’s 2009/10 wheat crop are expected to rise by 2.7 per cent to 21.9Mt. ABARE did note that rainfall in May and June was timely for crop sowing in the Eastern and Southern states while Western Australian crop production is still uncertain with conditions still dry.
Barley production is tipped to rise from 6.8Mt over 2008-09 to 7.7Mt. Canola crop production is estimated at 1.7 million tonnes, down from 1.9 million tonnes in 2008-09. Sorghum production will fall 17pct in the year to 1.9 million tonnes, while cotton seed production will rise 35 per cent to 604,000 tons in 2010.
Minutes from the May Reserve Bank Board meeting
Key Comments:
“Members took particular note of the strong recovery in Chinese industrial production and the pick-up in production in a number of east Asian economies, including Japan. The story was not as positive in the western advanced economies, where industrial production was still falling in the United States and the Euro area, albeit at a slower rate in the former.”
“Recent data provided further signs that growth had picked up in China. Members noted the very large increases in fixed capital investment by the public sector and the strong credit growth..”
“Members noted that the rate of decline in output in the advanced economies was slowing. Although recent data for the United States had been mixed, there were some signs that the rate of deterioration in the labour market had slowed.”
“The Euro area economy remained in recession. In most countries, GDP in the March quarter had fallen by more than in the December quarter, with Germany in particular recording a large fall” ….
“Members concluded their discussion of the world economy by observing that, despite the slightly more positive data for the world economy as a whole, a considerable degree of uncertainty regarding prospects for recovery remained. Growth was likely to be below trend for some time, and spare capacity and unemployment were expected to rise”
Retail sales: “These data showed that the level of spending was about 5 per cent higher than in November last year, with the recent fiscal stimulus packages a factor in this growth. Liaison conducted by the staff indicated that retail conditions had been strong in May, partly reflecting the tax bonus payments in the second half of April and early May.”
Business investment: “business investment in the March quarter recorded a large decline, with falls in spending on both equipment and buildings & structures. In addition, business expectations about future investment spending were downgraded. However, in contrast to many other economies, investment as a share of GDP was not expected to fall to unusually low levels, in large part because of continuing high levels of investment in the mining sector.”
Exports: “exports in the March quarter had been remarkably strong, especially in light of the large decline in global trade that had taken place since late last year. Rural exports, notably wheat, had risen strongly, and there had been a smaller fall in manufacturing exports than that experienced in some other countries.””
Financial markets: “Members were informed that the general improvement in conditions in credit markets had continued. A significant rise in government bond yields was consistent with that improvement, but also suggested that concerns were rising about the global supply of sovereign debt.”
“Global credit spreads had fallen further during the month and were now at levels prevailing prior to the collapse of Lehman Brothers in September last year. Domestic money market spreads had declined to around the lowest points since the onset of the financial crisis.”
Outlook: “In Australia, the economy was experiencing a downturn but, on the information available so far, this would be less severe than in most other countries. Here too the outlook was for a fairly gradual expansion getting under way later in the year, with spare capacity tending to increase and inflation tending to decline. Recent information had not led to any downward revision to the outlook; if anything, some indicators had been on the stronger side.”
Policy decision: “Monetary policy had been eased significantly, and budgetary measures were also providing significant support to demand. Indications were that these policies were having some impact, though the full effects would take time yet to be seen. Board members did not see a pressing case for any further action at this meeting, though they viewed the inflation outlook as affording scope for some further easing of monetary policy.”
What is the importance of the economic data?
The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
The Australian Bureau of Agricultural and Resource Economics (ABARE) release its Crop Report each quarter. The latest estimates on winter and summer crops assists investors in assessing conditions for the rural and resources sector and companies leveraged to these industries
What are the implications for interest rates and investors?
CommSec is pencilling in a small 25 basis point rate cut later in the year – just in case. In the current environment it looks more likely that rates will be left on hold. Still, with longer term interest rates and funding costs for banks rising the potential for one further rate cuts is on the cards.


Source CommSec

Sunday, June 14, 2009

media contacts

ABS figures show signs of a stabilising and growing property market
The Real Estate Institute of Australia (REIA) President, Mr David Airey said ABS figures released today highlight
a property market that has stabilised and showing signs of growth as investors make a return to the market, with
first home buyers continuing to be very active.
“This is a really positive sign for the property market and shows that investors are starting to re-gain their
confidence while the main driving factor for first home buyers are low interest rates and the availability of the
First Home Owner’s Grant Boost (FHOG Boost)”, continued Mr Airey.
The data released also shows a 0.9% increase in the number of established home purchases, in comparison to a 0.5% decline in the number of new home purchases.

“These results show that REIA made an accurate assessment of buyer preferences in its submissions for an extension of the FHOG Boost for both new and existing homes”, continued Mr Airey.
“While the proportion of first home buyers increased to 28% of total owner occupier housing finance
commitments, the average loan size decreased by $2,500, reflecting the tightening of bank lending practices in
the current economy”, concluded Mr Airey.
REI Media Release Wednesday 10th June 2009

Monday, June 8, 2009

No Recession!

National accounts
· The Australian economy expanded by 0.4 per cent in the March quarter after contracting by a revised 0.6 per cent in the December quarter.
· The Australian economy out-performed all other industrialised nations in the quarter by a big margin.
· No state government is officially in recession once exports and imports are taken into account.
· CommSec expects the Australian economy to rebound far quicker than Federal Treasury. In 2008/09 the economy will probably grow by only 0.6 per cent, but 2.1 per cent growth is tipped for 2009/10 and 4.1 per cent growth is expected in 2010/11.
What does it all mean?
· In may not spark dancing in the streets, but it is clearly good news that the economy has avoided recession. Because this downturn has been all about confidence. If consumers and businesses become confident about spending and hiring again then recovery should be a lot quicker and stronger than most analysts thought possible just a month ago.
· Is Australia the wonder from down under? It certainly looks that way. Every other major developed economy went into reverse in a big way in the first three months of the year but Australia actually grew. Much of the credit for Australia’s resilience must be given to the swift actions of the Reserve Bank and the Government in stimulating our economy. And the weaker Aussie dollar played a key role in boosting the competitiveness of our exports.
· If the near-death experience of the economy has taught us anything it is not to count your chickens before they hatch. Forecasts for economic growth and unemployment are just that – forecasts. Forecasts inevitably miss their mark and that’s why businesses and consumers should spend more time looking at their balance sheets than worrying about what may happen.
· Gloom and doom reports in the media almost caused Australians to talk themselves into recession. The important thing now is that commentary and analysis of our economic situation becomes more balanced. While the tough times abroad must be acknowledged, the strong position of our economy must be similarly recognised.
· It’s amazing how much time is spent looking backwards, not forwards. While Australians should take a short amount of time to assess the latest economic growth figures, they should spend a far greater amount of time on what lies ahead. The good news is that the global economy appears to have bottomed, China is recovering strongly and the housing market is driving the domestic upturn. Businesses must now look to take on staff to take advantage of the stronger economic conditions that lie ahead.
· Rumours of the death of the Australian economy have been highly exaggerated. Despite premature pronouncements, the economy has avoided recession – if only just – and now it should be a case of companies and consumers getting on with business. Too much time has been spent fretting over a possible recession when Australians should have been spending more time focussing on their improved financial circumstances.
· The Australian economy was certainly flattened by the global financial crisis but it is clear that it has avoided the sort of downturn experienced by other major developed economies. The swift stimulatory actions taken by the Reserve Bank and the Federal Government can take credit for Australia’s impressive resilience, together with the strength of our banking system.
· The worst of the economic slowdown is now over. It is becoming clearer by the day that forecasters became too pessimistic, failing to give equal weight to the responsiveness of policymakers as to the fundamental problems faced by the US economy. The federal budget is less than a month old but already it looks to be out of date. The economy could rebound much quicker than expected, reducing the size of the potential budget deficit.
· One thing is clear – Australia went close to talking itself into recession. Our economic conditions were nowhere near as bad as other parts of the globe, but somehow we all thought they were as bad. If Australians focus on the opportunities that lie ahead then the rebound could be much quicker and stronger than envisaged only a month ago.
· CommSec expects the Australian economy to rebound far quicker than Federal Treasury. In 2008/09 the economy will probably grow by only 0.6 per cent, but 2.1 per cent growth is tipped for 2009/10 and 4.1 per cent growth is expected in 2010/11.
What do the figures show?
· Economic Growth: The economy expanded by 0.4 per cent in the March quarter after contracting by a revised 0.6 per cent in the December quarter. Annual economic growth fell from 0.8 per cent to 0.4 per cent.
· The non-farm economy grew by 0.5 per cent in the March quarter after contracting by 0.8 per cent in the December quarter. Annual growth held steady at a flat result.
· Farm GDP contracted by 2.5 per cent in the quarter to be up 15.9 per cent over the year.
· Growth drivers: Private business investment subtracted 1.1 percentage points (pp) from overall GDP growth in the March quarter. Government investment subtracted 0.1pp while government consumption added 0.1pp. Household consumption added 0.3pp with net exports (exports less imports) adding 2.2pp – marking the biggest boost in 48 years, while inventories remained flat.
· Inflation: The best measure of domestic price pressures, the household consumption implicit price deflator, rose by 0.9 per cent in the March quarter with annual growth at 3.8 per cent. Real non-farm unit labour costs fell by 1.3 per cent in the March quarter to stand 1.4 per cent lower over the year.
· Productivity: GDP per hour worked in the market sector fell by 0.5 per cent in the March quarter in seasonally adjusted terms after rising by 0.7 per cent in the December quarter. Annual productivity growth fell by 0.1 per cent in the March quarter.
· States: South Australia posted the strongest growth over the quarter with state final demand up 2.0 per cent, followed by the ACT which posted a flat result. Weakest was Northern Territory down 9.2 per cent, Queensland down 3.1 per cent and Tasmania down 2.5 per cent. Vic was down 2.1 per cent followed by NSW down 0.2 per cent.
· Stronger consumer spending. Household consumption rose by 0.6 per cent in the March quarter, with annual growth of 0.8 per cent. Strongest growth of spending in the quarter was recorded by Clothing and footwear (up 1.8 per cent). Hotel, café and restaurant (up 1.5 per cent), Communication (up 1.3 per cent), and Food, Recreation and Electricity, Gas and other fuel (up 1.1 per cent) also posted firm growth. The weakest area was the purchase of Vehicles (down 1.4 per cent), followed by Furnishing and household equipment (down 0.8 per cent) and Health (down 0.3 per cent).
· Sectors: Seven of 17 industry sectors expanded in the March quarter. Government, administration and defence gained 4.1 per cent over the quarter (3.2 per cent annual) with Health and community services up 1.1 per cent over the quarter (2.7 per cent annual). Transport and storage fell 2.4 per cent (-1.9 per cent annual), Agricultre, forestry and fishing fell 2.4 per cent (15.2 per cent annual) and Construction fell 2.4 per cent (up 0.1 per cent in annual terms).
· Other points:
· Profit share rises. In seasonally adjusted terms, the ratio of profits to total factor income rose from 26.6 to 26.9 per cent in the March quarter. The wages share fell from 53.3 to 52.9 per cent in the March quarter.
· Household savings fell. Households found it more difficult to save in the latest quarter – with the household saving ratio falling from 6.9 per cent to 1.8 per cent, in seasonally adjusted terms in the March quarter.
· Imports took a smaller share of spending. The imports to sales ratio fell from an eight year high of 0.392 in the December quarter to 0.35 in the March quarter.
· The inventory to sales ratio rose from 0.634 in the December quarter to 0.657 per cent in the March quarter.
What is the importance of the economic data?
· The quarterly National Income, Expenditure and Product release (national accounts) from the Bureau of Statistics is the most complete assessment of Australia’s economic performance. Detailed estimates are provided on incomes (wages, profits), spending (such as household, dwelling investment and trade (exports and imports) and production (comparing industry performance). Other data includes household saving and the economic performance of States and Territories.
· The main use of the national accounts figures is as a historical record of economic performance. The information has little forward-looking value for currency, interest rate or share markets.
What are the implications for interest rates and investors?
· The world is experiencing its biggest ever post war slowdown, so we were never going to come out of this totally unscathed. Growth was at best flat over the last year. More importantly for companies and investors forward looking indicators like building approvals and retail sales suggest the domestic economy has likely seen the worst of this global downturn.
Source Craig James, Chief Equities Economist, CommSec

No Recession!

National accounts

· The Australian economy expanded by 0.4 per cent in the March quarter after contracting by a revised 0.6 per cent in the December quarter.
· The Australian economy out-performed all other industrialised nations in the quarter by a big margin.
· No state government is officially in recession once exports and imports are taken into account.
· CommSec expects the Australian economy to rebound far quicker than Federal Treasury. In 2008/09 the economy will probably grow by only 0.6 per cent, but 2.1 per cent growth is tipped for 2009/10 and 4.1 per cent growth is expected in 2010/11.

What does it all mean?

· In may not spark dancing in the streets, but it is clearly good news that the economy has avoided recession. Because this downturn has been all about confidence. If consumers and businesses become confident about spending and hiring again then recovery should be a lot quicker and stronger than most analysts thought possible just a month ago.

· Is Australia the wonder from down under? It certainly looks that way. Every other major developed economy went into reverse in a big way in the first three months of the year but Australia actually grew. Much of the credit for Australia’s resilience must be given to the swift actions of the Reserve Bank and the Government in stimulating our economy. And the weaker Aussie dollar played a key role in boosting the competitiveness of our exports.

· If the near-death experience of the economy has taught us anything it is not to count your chickens before they hatch. Forecasts for economic growth and unemployment are just that – forecasts. Forecasts inevitably miss their mark and that’s why businesses and consumers should spend more time looking at their balance sheets than worrying about what may happen.

· Gloom and doom reports in the media almost caused Australians to talk themselves into recession. The important thing now is that commentary and analysis of our economic situation becomes more balanced. While the tough times abroad must be acknowledged, the strong position of our economy must be similarly recognised.

· It’s amazing how much time is spent looking backwards, not forwards. While Australians should take a short amount of time to assess the latest economic growth figures, they should spend a far greater amount of time on what lies ahead. The good news is that the global economy appears to have bottomed, China is recovering strongly and the housing market is driving the domestic upturn. Businesses must now look to take on staff to take advantage of the stronger economic conditions that lie ahead.

· Rumours of the death of the Australian economy have been highly exaggerated. Despite premature pronouncements, the economy has avoided recession – if only just – and now it should be a case of companies and consumers getting on with business. Too much time has been spent fretting over a possible recession when Australians should have been spending more time focussing on their improved financial circumstances.

· The Australian economy was certainly flattened by the global financial crisis but it is clear that it has avoided the sort of downturn experienced by other major developed economies. The swift stimulatory actions taken by the Reserve Bank and the Federal Government can take credit for Australia’s impressive resilience, together with the strength of our banking system.
· The worst of the economic slowdown is now over. It is becoming clearer by the day that forecasters became too pessimistic, failing to give equal weight to the responsiveness of policymakers as to the fundamental problems faced by the US economy. The federal budget is less than a month old but already it looks to be out of date. The economy could rebound much quicker than expected, reducing the size of the potential budget deficit.
· One thing is clear – Australia went close to talking itself into recession. Our economic conditions were nowhere near as bad as other parts of the globe, but somehow we all thought they were as bad. If Australians focus on the opportunities that lie ahead then the rebound could be much quicker and stronger than envisaged only a month ago.
· CommSec expects the Australian economy to rebound far quicker than Federal Treasury. In 2008/09 the economy will probably grow by only 0.6 per cent, but 2.1 per cent growth is tipped for 2009/10 and 4.1 per cent growth is expected in 2010/11.
What do the figures show?
· Economic Growth: The economy expanded by 0.4 per cent in the March quarter after contracting by a revised 0.6 per cent in the December quarter. Annual economic growth fell from 0.8 per cent to 0.4 per cent.
· The non-farm economy grew by 0.5 per cent in the March quarter after contracting by 0.8 per cent in the December quarter. Annual growth held steady at a flat result.
· Farm GDP contracted by 2.5 per cent in the quarter to be up 15.9 per cent over the year.
· Growth drivers: Private business investment subtracted 1.1 percentage points (pp) from overall GDP growth in the March quarter. Government investment subtracted 0.1pp while government consumption added 0.1pp. Household consumption added 0.3pp with net exports (exports less imports) adding 2.2pp – marking the biggest boost in 48 years, while inventories remained flat.
· Inflation: The best measure of domestic price pressures, the household consumption implicit price deflator, rose by 0.9 per cent in the March quarter with annual growth at 3.8 per cent. Real non-farm unit labour costs fell by 1.3 per cent in the March quarter to stand 1.4 per cent lower over the year.
· Productivity: GDP per hour worked in the market sector fell by 0.5 per cent in the March quarter in seasonally adjusted terms after rising by 0.7 per cent in the December quarter. Annual productivity growth fell by 0.1 per cent in the March quarter.
· States: South Australia posted the strongest growth over the quarter with state final demand up 2.0 per cent, followed by the ACT which posted a flat result. Weakest was Northern Territory down 9.2 per cent, Queensland down 3.1 per cent and Tasmania down 2.5 per cent. Vic was down 2.1 per cent followed by NSW down 0.2 per cent.
· Stronger consumer spending. Household consumption rose by 0.6 per cent in the March quarter, with annual growth of 0.8 per cent. Strongest growth of spending in the quarter was recorded by Clothing and footwear (up 1.8 per cent). Hotel, café and restaurant (up 1.5 per cent), Communication (up 1.3 per cent), and Food, Recreation and Electricity, Gas and other fuel (up 1.1 per cent) also posted firm growth. The weakest area was the purchase of Vehicles (down 1.4 per cent), followed by Furnishing and household equipment (down 0.8 per cent) and Health (down 0.3 per cent).
· Sectors: Seven of 17 industry sectors expanded in the March quarter. Government, administration and defence gained 4.1 per cent over the quarter (3.2 per cent annual) with Health and community services up 1.1 per cent over the quarter (2.7 per cent annual). Transport and storage fell 2.4 per cent (-1.9 per cent annual), Agricultre, forestry and fishing fell 2.4 per cent (15.2 per cent annual) and Construction fell 2.4 per cent (up 0.1 per cent in annual terms).
· Other points:
· Profit share rises. In seasonally adjusted terms, the ratio of profits to total factor income rose from 26.6 to 26.9 per cent in the March quarter. The wages share fell from 53.3 to 52.9 per cent in the March quarter.
· Household savings fell. Households found it more difficult to save in the latest quarter – with the household saving ratio falling from 6.9 per cent to 1.8 per cent, in seasonally adjusted terms in the March quarter.
· Imports took a smaller share of spending. The imports to sales ratio fell from an eight year high of 0.392 in the December quarter to 0.35 in the March quarter.
· The inventory to sales ratio rose from 0.634 in the December quarter to 0.657 per cent in the March quarter.
What is the importance of the economic data?
· The quarterly National Income, Expenditure and Product release (national accounts) from the Bureau of Statistics is the most complete assessment of Australia’s economic performance. Detailed estimates are provided on incomes (wages, profits), spending (such as household, dwelling investment and trade (exports and imports) and production (comparing industry performance). Other data includes household saving and the economic performance of States and Territories.
· The main use of the national accounts figures is as a historical record of economic performance. The information has little forward-looking value for currency, interest rate or share markets.
What are the implications for interest rates and investors?
· The world is experiencing its biggest ever post war slowdown, so we were never going to come out of this totally unscathed. Growth was at best flat over the last year. More importantly for companies and investors forward looking indicators like building approvals and retail sales suggest the domestic economy has likely seen the worst of this global downturn.
Source Craig James, Chief Equities Economist, CommSec